Todd's Tax Service LLC

Opinions expressed herein are those of Todd Fogelberg and should not be construed as investment or insurance advice. Consult with a licensed broker before making any financial decisions connected to the topics covered on these pages.

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Educate yourself about money. The $ you save could be your own!

Common Mistakes- Investing

When you've worked with as many clients as I have over the years, you get a definite sense of how not to try to make money in this market. Here are some of the things I've learned over the years - some of this is personal experience, some of it is based upon observation of other people's experiences. 

Be sure to discuss the particulars of your investment situation with a qualified advisor before acting (or reacting) to any information contained herein.

It is very difficult to consistently beat the market.  Trading is time consuming and costly in terms of brokerage costs. General rule of thumb - "the more you trade, the less you make". Knowing when to get in and when to get out are 2 very difficult things to do. This doesn't mean you need to follow Warren Buffet and hold everything forever, but high frequency trading should be reserved for professional traders, not the average investor.

Borrowing (using leverage or a margin account) is a fool's game.  The only thing worse than losing your own money is losing someone else's money and having to pay them back with interest.

Getting off the beaten path isn't usually a good idea. Unusual investments (that are often
too good to be true) often result in big losses. 

Failing to diversify across different asset classes.  It's the old "too many eggs in one basket".
Diversification reduces risk, ideally one finds assets that aren't directly correlated with each other, although that is difficult to do. 

Betting the Ranch.  The roof over your head isn't something you should gamble with.

Looking in the rear view mirror while driving down the highway at 70 MPH. Regrettably, the past performance of an investment or even a market, tell us little about will happen in the future. Past bond fund returns are meaningless for anyone looking to invest in bond funds today. This is only one example of the "rear view mirror" syndrome. 

Failing to rebalance the portfolio- As asset prices change, it is necessary to rebalance periodically to maintain the target asset mix. Target date funds may do this automatically. Automatic rebalancing is also available inside a variable annuity in many cases.

Taking the "do it yourself" path.  My honest opinion on this is that a good advisor is worth his or her weight in gold. The commission paid isn't going to derail your retirement or cause you to miss your goals. On the contrary, most do it yourself investors under perform those who work with competent, ethical investment professionals. Not the kind that just want to make a fast buck for themselves, but those dedicated to genuinely listening to your hopes and dreams and helping you chart a course based upon sound financial planning principles. 

Obsessing over the day's market news - This is a complete waste of time. If you enjoy watching the news and programs on networks like CNBC, Bloomberg, fine. Enjoy yourself! But this activity will not make you a better investor in my opinion. In fact, the daily swings in the news (today is great, tomorrow the world will end) actually distract you from what you should be focusing on.

Buying an annuity -  All too often, investors are talked into buying an annuity, generating a fat commission for the agent that sold it to them. Don't buy an annuity until you talk to 2 agents and compare different options. Make sure you understand the terms of the contract including surrender timelines and charges, fees, and guarantees. They are often presented as a "have your cake and eat it too" alternative to mutual funds and other investments. If it sounds too good to be true, ask lots of questions and don't buy until you are satisfied with the answers. Check the insurer's rating at AMBEST.COM.        Link to Barron's Video on Annuities

(Annuities, when properly used, may be a wise purchase. Ask us for information about your tax and financial situation and how annuities might fit into the puzzle. Then you can talk intelligently to agents and shop for a suitable contract that meets your needs in a tax efficient manner.)

This time it is different - History continually repeats itself with regard to investment scandals and stories.
Bank of America may  be too big to fail, but remember, you are too small to bail.
Your losses will be yours and yours alone as you are too small to bail out. Investors should expect losses if they choose to invest out on the risk reward spectrum and build this reality into their overall plan.

Holding onto real estate for investment purposes - Real estate should be evaluated like any other asset. Does the investment produce income? Are there carrying costs like real estate taxes and insurance that are a drag on the investment's potential return? We can assist you in analyzing the tax consequences of selling real estate as well as the other financial implications unique to your situation.

Investing in someone else's business venture - This would include family and friends. No. End of Story.
(If they want to borrow money, refer them to a bank or SBA lender).

Buying "Permanent" Life Insurance - The most notable feature of Whole Life and Universal Life are the "permanent" profits guaranteed the insurance company upon sale of one of these policies. The vast majority of individuals are better off buying term insurance and "investing the difference" in a Roth IRA or other investment vehicle. The illustrations used by agents to sell the policies are notoriously misleading for a reason.