10 biggest investing blunders

With the benefit of hindsight, perhaps the biggest mistake is to invest in the markets at all.   The commissions that these investment people charge almost all but guaranty that you, the investor, will not make any money unless the market does phenomenally well, and things like the current depression (that is the correct word) don't happen.  In my case what has triggered my closely looking at what has been charged was a $30 "account administration" fee charged by the investment firm when a couple of linked accounts fell below the threshold value as a result of market losses.  That was this past week.  Today, I fired my investment advisor.  Later this week I am meeting with an attorney.

When I left my prior employer I rolled over my 401K.  I became self-employed and did well and the next year about $40K was added to the rollover, so that in 3/05 a total of about 375K was in the 401K.  Expecting ongoing higher compensation from self-employment, I then began a 412(i) plan, and the 401K was left in the hands of my financial adviser with no more additions (other than dividends or splits) or withdrawals (none - all fees to the advisor were paid outside of the plan).  While at the height of the market the 401K was at 550K, today (7/09), nearly 4.5 years later  the 401K is worth only $370K, and on top of that I have paid my financial advisor about 6K in that time period to essentially do nothing.  The advisor is a firm believer in the "let it ride" philosophy of investing, asserting constantly that I am in it for the long term.  Well so much for that, at least from a 4.5 year plus perspective.  Putting the money in a CD would have me tens of thousands ahead of my current position. 

The 412(i) plan is even worse when it comes to others siphoning off fees and being the only ones making money off of my investment.  The plan allows approximately $100K to be funded each year, and consists of about 50% insurance and 50% annuity product.  In the initial year, of about $50K spent to purchase insurance, $47K went to pay commissions of one sort or another, with better than $35K going to the investment advisor's firm, and some indirectly to the investment advisor.  The insurance product portion of the 412(i) plan still incurs approximately $5,100 a year in "plan costs", which is a euphamism for commissions.  On top of all of that, the 412(i) plan needs to be administered by a third party (by law - there is no other choice), and over the past several years, those fees have been over $9,000 (starting out at about $1500 and now up to $2025 with three changes in plan administrators (again, I have no choice - one administrator claims they are getting out of the business and another one gets it, and promptly proceeds to charge about 20% more than the prior one).  As for what anyone disclosed to me, the only thing was the annual administration fee then estimated as about $2000.  The rest, including the ridiculously lavish commissions paid on the insurance aspect of the 412(i) plan, was never disclosed.  In fact, when I first learned about it and confronted the investment advisor, they sheepishly admitted that even they were not aware that anywhere near that much was going to line some salesmans pockets.  The 412(i) plan (because it is so heavily in a guaranteed annuity) has ironically been the saving grace in this economic environment, but the undisclosed fees/commissions have been absurd.

When all is said and done, over the past five years or so the total that has been paid to someone to handle my investments has been more than $75K.  Personally, I think that is highway robbery, and it is my bad for having gotten involved with any investment advisor.  The entire industry needs to be reformed, and the concept of being paid a percentage on asset value and then doing nothing except collecting the percentages is simply wrong.  The lack of disclosures is as bad or even worse.  In the end the only ones who have made money on my investments have been the advisors and the salesmen. 

The investment advisor has been fired, but it is hard

J12120 -

I hear ya. And, it’s not just the fees that eat you alive when investing. It’s also the trading margins that you never even see scalped from you and your fund managers by the largest Wall Street firms which control most of the volume flow on the major exchanges. Their computer programs see our orders coming and do their best to jump in front of them at the speed of light, almost ensuring that we pay more when we buy and get less when we sell. Since broker competition has reduced transaction fees, boosting trading margin has become the favored strategy of these firms to ensure the ancient rule of Wall Street still applies:

The investor puts up the money and takes all the risk of loss. When there’s a profit, we split it 50/50.

Because you have to time when to get into the market, and when to get out, you have to be right twice; and those odds are about 1 in 4 chances, so timing the market is a suckers game.

That said, I had some indicators that worked for me for 5-1/2 years. The last few months, my sell timing has been atrocious so I'm getting out of the market timing game, but staying fully invested.

I mostly used ETFs, CEFs, and open end mutual funds so I could have cheap diversification, and traded through a discount brokerage firm for flexibility and convenience. I mostly stay away from managed funds because for the most part, for every dollar a fund spends on research, it only gets 50 cents of that dollar back.

Its better to do some intelligent asset allocation. Purists will tell you that Modern Portfolio Theory and Efficient markets are dead, but even so they are better than the alternatives. I keep my investments in diversified, and I hope, weakly to negatively correlated assets. This way I almost always have money in some market sector before it gets hot.