Asset Allocation For Dummies®

Chapter 18. Ten Common Asset Allocation Mistakes

In This Chapter

• Identifying the mistakes many investors make

• Understanding how you can avoid them

What prevents success for most investors? Their own behavior.

Here's an example: Studies show that the average long-term return for equity mutual funds is in the neighborhood of 10 percent, but the average investor in those funds gets only 4 percent. Why? Problematic investor behavior.

In many cases, investors simply get in their own way. Whether it's letting emotions rule, paying too much attention to the talking heads on TV, chasing performance, or trying to time the markets, investors' bad behavior can destroy their best-laid plans and good intentions.

The good news: If you know what to look for, you can dodge these obvious mistakes. In this chapter, we outline ten common mistakes made by investors. If they sound just a little too familiar, don't sweat it! At the end of each section, we clue you in on how you can avoid the mistakes and nip the problematic behavior in the bud.

Ignoring Asset Allocation in the First Place

Asset allocation helps investors achieve success. In fact, it's the key driver of success (see Chapter 4). So why don't more investors use this strategy to their benefit? Why do they make the mistake of ignoring asset allocation?

A lack of information isn't the issue, so scratch that off the list. The Web sites of nearly every mutual fund and brokerage firm explain asset allocation. Bookstores have shelves full of good books ...