What are the biggest mistakes investors make?

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Greenbacks's picture
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Joined: 2004-12-21

What are the biggest mistakes you guys have seen investors make in your career?
 
 
 

Mike Damone's picture
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Joined: 2004-12-01

Act on a hot stock idea from their brother-in-law.

B24's picture
B24
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Joined: 2008-07-08

Definitely.  I see too many people trying to out-smart the market.  Sometimes you get lucky and the sun shines on your a$$.  But one day, and it may take time, your luck runs out.  I see a LOT of people load up on company stock in their 401K.  This is going to come abck to haunt a LOT of people (as it always has).  Good long-term company performance just sucks employees in.  I have people with their entire $1mm life savings in company stock.  The particular one I am talking about is now down about 45% (not much different than if they were diversified in their 401K). 

gvf's picture
gvf
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Joined: 2008-07-01

Client entered into a real estate trust, where the managers gave each client an IOU rather than a deed.  Each house had about 15-20 IOUs attached to it.  Manager went crazy, killed himself, the son took over the management, and lost his ass in the housing collapse.  My client lost her 10% income, most of her $300k, and is now a part 1/20th owner in 10-15 houses in subdivisions all over CA.  That, and no legal standing.  

anonymous's picture
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Joined: 2005-09-29

In no particular order:
 
1) Invest left over money instead of paying themselves first.
2) Inadequate amounts of life insurance and disability income insurance
3) Owning the wrong type of life insurance
4) Investing above their risk tolerance
5) Underdiversification
6) Thinking that their house is an investment
7) Owning a VUL policy
8) Investing before having adequate savings
9) Making spending decisions based upon affording the payments instead of affording the item
10) Improper beneficiary designations
 

gvf's picture
gvf
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Joined: 2008-07-01

Didn't take my advice, didn't get a living trust, and died out of state, with houses in 2 other states.  Probate was a mess.

Anonymous's picture
Anonymous

I've got one to add to the list:
 
401K/403B loans.  Too many people don't understand the pitfalls & potential consequences of these loans if they cannot repay them, miss payments, or lose their jobs (etc.). 

eggward's picture
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Joined: 2007-08-06

Too much company stock.  "MY company will never drop like Enron/Worldcom/etc."  They all do it....they all regret it sooner or later.
Back in 1999, I had an elderly client with zero debt and a six figure account with good, dividend paying stocks.  Her son told her about the huge Y2K problem coming and scared her so bad she sold everything, invested it all in a local business that went bankrupt within 6 months.  She started looking for a job and was investigating getting a mortgage to be able to pay bills while she sorted things out.  I still wonder if she ever sold the house and moved in with her son after that. 

GoingIndy????'s picture
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Joined: 2007-07-01

gvf wrote:Client entered into a real estate trust, where the managers gave each client an IOU rather than a deed.  Each house had about 15-20 IOUs attached to it.  Manager went crazy, killed himself, the son took over the management, and lost his ass in the housing collapse.  My client lost her 10% income, most of her $300k, and is now a part 1/20th owner in 10-15 houses in subdivisions all over CA.  That, and no legal standing.  
 
 
Now that is messed up.

troll's picture
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Joined: 2004-11-29

Have a client that pulled all of their money out of the market in July 2002.  Brought it back in August 2007.  I am waiting for  them to pull their money again so I will know when this is over.

snaggletooth's picture
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Joined: 2007-07-13

Primo wrote:Have a client that pulled all of their money out of the market in July 2002.  Brought it back in August 2007.  I am waiting for  them to pull their money again so I will know when this is over.
 
Let us know too.

rankstocks's picture
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Joined: 2005-02-10

This one tops the list...
    This is an absolutely true story. Have a client that sold out within 1 day of the bottom in 2002.  This was one of only 4 clients that sold out at the bottom.  Bought back into the market in 2004 after missing 40%.  Fast forward to this month, Called me on Friday the 10th, forced me to sell everything again and put the money in short term CD's.  He is only one of 3 clients this time that have sold out.  He's my indicator when the bear market is over.  Hopefully he'll stick around for the next cycle so I'll know when the next one is over again.

snaggletooth's picture
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Joined: 2007-07-13

rankstocks wrote:This one tops the list...
    This is an absolutely true story. Have a client that sold out within 1 day of the bottom in 2002.  This was one of only 4 clients that sold out at the bottom.  Bought back into the market in 2004 after missing 40%.  Fast forward to this month, Called me on Friday the 10th, forced me to sell everything again and put the money in short term CD's.  He is only one of 3 clients this time that have sold out.  He's my indicator when the bear market is over.  Hopefully he'll stick around for the next cycle so I'll know when the next one is over again.
 
God has a special plan for that guy...

UNDERMINDED's picture
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Joined: 2008-10-14

Rankstocks takes the cake on this one.
 
I had a clients buy Lehman Bonds...

Spaceman Spiff's picture
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Joined: 2006-08-08

Worst mistakes I've seen have been people acting on Cramer's et al's advice.  Somehow they don't always take my advice after they've sat down with me to discuss their portfolio and changes I'd recommend, but watch Cramer or Suze tell them to do something and they jump.  Stupid sheep. 
 
Other bad mistakes:  Getting divorced.  Dying without a will/trust.  Not taking gains.  Chasing a rate at a bank.  Believing the EIA guy is right.  Thinking trees grow to the sky.  Taking financial advice from a family member (think Joe the Plumber meets Cramer).  Not protecting some of their retirement income with a VA. 
 
I think the biggest one is just simply not having a plan.  I read one time that only 2 out of 5 people have ever sat down with one of us and mapped out their financial future.  And 1/2 of those people used incorrect assumptions.  That's really scary when you look at the number of baby boomers there are out there who think they can retire right now.   

B24's picture
B24
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Joined: 2008-07-08

rankstocks wrote:This one tops the list...
    This is an absolutely true story. Have a client that sold out within 1 day of the bottom in 2002.  This was one of only 4 clients that sold out at the bottom.  Bought back into the market in 2004 after missing 40%.  Fast forward to this month, Called me on Friday the 10th, forced me to sell everything again and put the money in short term CD's.  He is only one of 3 clients this time that have sold out.  He's my indicator when the bear market is over.  Hopefully he'll stick around for the next cycle so I'll know when the next one is over again.
 
And of course it was all your fault..."these goddam 'stockbrokers'!  They take all these commissions, then they lose all your money!  It's a freakin' racket!"

henryhill's picture
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Joined: 2007-08-23

(1) pulling serious jack out of their 401k/ira and worry about the taxes later
 
(2) credit card discipline or lack there of
 
(3) refusal to look at any investment that doesn't have FDIC behind it

tryintomakeit's picture
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Joined: 2008-08-25

Hmm....lets see-Acting on a tip from Cramer/Bro-in-law/neighbor, etc.-All the eggs in one basket (everything in their company stock)-CDs, everything in CDs and nothing but CDs.- "My house is worth $2 million and thats going to fund my retirement"And my all time fav- "I am comfortable doing it on my own".  Lets see you try to do your own brain surgery.  Just make sure you dont cut yourself

Anonymous's picture
Anonymous

-Working with Primerica..

bspears's picture
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Joined: 2006-11-08

Had a fairly new client come in Wed.  She was shaking and saying I had to help her.  I brought her into my office and told her to calm down and explain to me what I can do for her. Well, she sent a check for 40k to a company in Memphis to purchase 500 silver eagles, 26 gold coins and 24 1/5 oz swiss francs.  I said ok...whats the problem. She sent the check to them back in April and hadn't seen the coins and the company wouldn't take her calls or return messages. 
So we Google the company, call them and the receptionist said the guy was on the phone, could we hold, I said ALL DAY.  She kept coming back on to say he was still on the phone...we will wait.  My client was pacing the office...she did this without her husbands knowledge.  Finally the secretary came on and said hold on he is off the phone...10sec later she comes back and said well, he stepped away and is in a meeting. I said in 10 SECONDS....she said yes.  I said I will not get off the phone until I talk with someone or I'm calling the Tennesses states attorneys office.  She gets him on the phone...I yell a little bit...call him a dumbass...he said their backed up and she will get her stuff in a few days.  SHe said I want my money back and he said no and hung up.  Still waiting...............

snaggletooth's picture
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Joined: 2007-07-13

bspears wrote:Had a fairly new client come in Wed.  She was shaking and saying I had to help her.  I brought her into my office and told her to calm down and explain to me what I can do for her. Well, she sent a check for 40k to a company in Memphis to purchase 500 silver eagles, 26 gold coins and 24 1/5 oz swiss francs.  I said ok...whats the problem. She sent the check to them back in April and hadn't seen the coins and the company wouldn't take her calls or return messages. 
So we Google the company, call them and the receptionist said the guy was on the phone, could we hold, I said ALL DAY.  She kept coming back on to say he was still on the phone...we will wait.  My client was pacing the office...she did this without her husbands knowledge.  Finally the secretary came on and said hold on he is off the phone...10sec later she comes back and said well, he stepped away and is in a meeting. I said in 10 SECONDS....she said yes.  I said I will not get off the phone until I talk with someone or I'm calling the Tennesses states attorneys office.  She gets him on the phone...I yell a little bit...call him a dumbass...he said their backed up and she will get her stuff in a few days.  SHe said I want my money back and he said no and hung up.  Still waiting...............
 
 
Wow.  Why don't you be a hero and help her get in touch with one of those investigative reporters from the local news?  I'm sure this is the type of story they would love to pick up.  Especially since people are most likely to be conned in times like these.
 
 
Reminds me of my buddy/client whose grandfather had Altzheimers and was sold one of those magic wallets 5 times by some jerk.  The guy kept selling him wallets because he couldn't remember he bought one the week before.  Did it 4 or 5 times. 

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