Trap #1 – Don’t gamble away your investment capital

There are three types of speculating and gambling with your investment capital.

1. Trying to pick the best stocks

Stock picking includes buying a seemingly diversified group of 100 or fewer stocks and holding them for several years. Financial managers who tell you the best stock or fund to invest in are stock picking. In this instance, the average turnover in U.S. Equity mutual funds is 100% per year. They sell everything and start again every year with your money, without your knowledge.

2. Trying to time the market

Moving assets in your portfolio based on the forecast or prediction about the future is market timing. Feelings about changing your investment strategy based on events, past performance, or expert advice may seem like prudent investing. It is not.

Nobody knows what the market will do tomorrow or over the next twelve months.

And if they did, why would they tell you!

3. Track record investing

Working with a manager with 5, 10, 15, or 20 years of beating the market in the hope that he will continue his trend is track record investing. While the vast preponderance of evidence shows that you might get lucky and beat the market, academic studies show that you would most likely achieve less than a simple return.

In every case, there is a forecast – generated by you or someone you’ve paid. In either scenario, you are speculating – gambling on what the future holds with the money that might hold your future.

Remove the mystery surrounding the investment process by understanding the myths about investing.

Investment Trap #2:  Mistaking a lot of "stuff" for true diversification