Monday, January 23, 2012

Larry E. Swedroe's - Investment Mistakes Even Smart Investors Make and How to Avoid Them - Review


Investing in the stock market is no easy task. To track down a good stock or mutual fund you must do the research, talk to advisers, and study the fundamentals. Even after all that there is no guarantee your choice will perform. Still the making of mistakes is a common problem. Even seasoned investors make mistakes. Watching out for these mistakes is so important for your portfolio to grow.

Larry Swedroe has written a book called "Investment Mistakes Even Smart Investors Make and How to Avoid Them". It's a detailed check list of common and some uncommon mistakes all investors make. He has listed 77 mistakes that you need to be aware of. Many of the mistakes, you and I will undoubtedly recognize, as poor choices we have already made.

The mistakes are really nothing the average investor hasn't seen or heard of before. They are mainly problems we have with investing. You can divide them up between poor investment behavior, being to greedy, following the herd, or misunderstanding how the market works. It seems our own human nature gets us into the most trouble.

Each chapter addresses one mistake by either relating a story or showing the evidence of it's error. A lot of these mistakes can be critical to the success of your portfolio. Mistake 42, is one example that addresses the importance of starting early with a savings plan. Swedroe shows how someone who starts their saving at 34 years old must continue to save for the rest of their work life while a 24 year old that saves $5,000 a year till 34 years old and stops will have have more money at retirement, all because of the magic of compound rate of return.

Mistake 60 shows how not having proper diversification in your portfolio can sabotage performance. Swedroe doesn't just give his opinion or experiences. He gives proof from academic research and trusted resources.

Swedroe is also a fan of index fund investing. Many instances of his affection for these instruments is evident. He's cautious to state the S.& P. index fund does not a portfolio make. He is an advocate of diversification through a broad range of index funds that cover large cap, small cap, and international.

Most people do not like to be told they are making mistakes. Especially the more mature investor that has been on the job for many years. Swedroe's puts all these mistakes between the two covers of this book. He shows us the common mistakes we make and how it can eat into the performance of our investments. Even though some mistakes are small when multiplied over the life time of investing their results can be devastating.

The one mistake Swedroe leaves out of his book is that the guy in the mirror can be one of the biggest mistake makers in doing the right thing with your savings. Teach that guy what he is up against buy letting him or her read this book.



Investment Mistakes Even Smart Investors Make and How to Avoid Them

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