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3 investing mistakes that drag down returns

On Wall Street typically pros talk about beating the averages, but for individuals who invest in stocks just finishing in the black is enough.

According to SigFig, a low cost investment management firm, one third of everyday investors ended 2014 at break even or with negative returns.

Mike Sha, the CEO and co-founder of SigFig talked about his proprietary research with Yahoo Finance and identified three of the worst money mistakes that he says drag down returns.

Single Stock Concentration

“Think of this issues as having too many eggs in one basket,” said Sha.

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That is, holding one or even a few individual stocks puts investors at risk of company specific woes such as management changes or poorly executed strategies, which in turn can cause shares to tumble. “60% of households have at least 10% of their portfolios in one single stock,” Sha said.  That’s largely because employers often provide access to their own stocks through incentive programs.” In a word, diversify.

Financial Patriotism

Sha also said many investors put too much money to work domestically. Not only does that strategy prevent long-term investors from participating in global growth, but it can harm a portfolio, again, by not offering widespread diversification.

Trading Too Frequently

Sha said too often investors chase a stock, and it causes them to trade far too aggressively. In turn, fees and charges hit the bottom line. “For every time you turn over your portfolio, you can expect a half percent reduction in returns. In investing there’s a saying, ‘you get what you don’t pay for.’”      

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