Whether you’ve come out ahead for the year or find yourself a little behind the markets, take heed of these major investing fails…
If you’re engaging in any of these bad habits, it’s time to go cold turkey. Otherwise, you’ll only hold your portfolio back in 2016 and beyond.
From trying to time the markets (a guess, at best) to following the herd on a hot stock tip, investors should always take the time to evaluate what they want to accomplish in their portfolio.
Risk and reward are perhaps the most important components of investment management, and digging into some of the variables that control them are key for investors.
Before we get into five bad habits to avoid on your way to better portfolio management, heed this bit of reality: EVERYONE makes mistakes, and NOBODY gets it right all the time.
Indeed, this is a year in which some of the biggest hedge and equity fund managers managed to lose money for investors. CNBC recently reported that the industry suffered its worst capital losses since 2008, with a $95 billion drop in values.
So take heart. Unlike those suffering hedge fund managers, you only have to apologize to yourself for any losses or wrong-headed moves.
Here’s how to start 2016 with a clean slate…
Stop Chasing Short-Term Winners
It never fails that someone lets you know they’ve found a way to jump into a stock that’s killing it in the market, particularly the shiny new IPO.
Want to know who’s making money on them as they run up? Brokers and insiders, not your bragging friends.
Don’t chase the story!
Mind the (High) Yields
With the 10-year note at around 2.15% and CD’s pretty much paying nothing, investors sitting on high-yield stocks believe they rule the day.
Be careful out there!
AT&T (T) and Verizon (VZ) both hover around the 5% yield threshold, yet both have some long-term growth issues. Similarly, Frontier Communications (FTR) is soaring with an 8% yield, but again, it may not be a long-term hold for growth.
Nobody really knows what a rate hike might do to high-yield stocks, and chasing a yield can be fool’s gold.
Want some proof? Kinder Morgan (KMI) cut its dividend 75% earlier this month. It’s yield? Over 12%.
Nobody brags about holding KMI anymore…
Know Thy Costs
ETFs and mutual funds are a great place to park your money if you want to follow a sector without individual stock exposure. They can, and in many cases should, be part of your portfolio.
But by all means, before you jump in or continue to hold on, know what you are paying and how those expenses affect your return.
You can find expenses quickly through Morningstar ratings and rankings, including any front end or back end loads in mutual funds.
Those expenses can cut your gains back and exacerbate your losses. Dig into them further to understand their impact.
Where are Your (Stock) Eggs?
Love tech stocks? That’s great!
Here’s the rub: make sure that you don’t own them in duplicate.
Remember, technology ETFs contain large concentrations of these stocks. The end result is that you may have all your eggs in one (sector) basket.
If you are holding individual stocks in any sector, check exposure to that stock in any ETF or mutual fund before you dive in. Diversification is key in portfolio performance.
Don’t get caught with unexpected overexposure to any one sector.
Rebalance and Reassess Your Holdings
Nothing is forever!
Investors in big oil stocks like Exxon (XOM) and Chevron (CVX) are understandably concerned over the continued oil slump. While both continue to pump out dividends, cutting back on oil patch exposure may be a prudent move for some investors.
The same advice goes for virtually any sector and, truthfully, stock. Re-evaluate the reason you got into the stock or sector in the first place and decide if you are still in, or looking to buy new (again).
A great example is General Electric (GE).
Early this year, GE attempted to become a “new company” focused on technology, industrials and the Internet of Things, but it didn’t go as well as people hoped, and some sold their shares.
That was a mistake.
Time, the greatest of all investment tools, has already proven them wrong. GE is doing nicely and might be positioned for a long-term run.
Will they get back in? Maybe.
Take time to re-evaluate your existing holdings, and any new additions on your mind. The mistake to avoid is allowing time and inertia to work in the other direction.
Marc Bastow is long AAPL, MSFT, and XOM
This post originally appeared in mainstreetinvestor.com.
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