Mutual Fund Buzz: Common Investor Mistakes

Investors seem to be slowly moving back into the stock market.


It's always good to take a step back and assess any mistakes you may be making in your portfolio. In a recent story, fund guru and Marketwatch columnist Chuck Jaffe outlines seven of the most common mistakes that fund investors make. His list includes performance-chasing, letting emotions take over, and not knowing when to dump a fund. Also, Jaffe writes, "More than 90 percent of all new money into mutual funds go to issues that carry Morningstar's four- and five-star rating." It's important to look at different types of rankings, Jaffe says, but some rankings only take into account how funds have performed in the past, which doesn't necessarily mean they will perform well in the future.

[See U.S. News's 9 Strategies for This (Or Any) Market.]

According to a recent Wall Street Journal article, the American Association of Individual Investors finds 48 percent of investors surveyed are bullish on stocks, as of last week—the highest level since February 2007. There are concerns that investors are once again late to a rally, and that they might just be jumping back into stocks because they have performed so well recently. (Since August, the S&P 500 has gained 17 percent.) Since early September, retail investors have poured about $2 billion into U.S. stock funds, according to the Journal.

[See U.S. News's The 100 Best Mutual Funds for the Long Term.]

Now that the elections are over, many investors are worried how a divided Congress will affect their portfolios. Morningstar's director of personal finance, Christine Benz, cautions investors that gridlock on Capitol Hill may not be good for markets. More importantly, she says, predicting exactly how the new Congress will legislate can be extremely difficult. "Attempting to gauge the broad market's performance in a post-midterm world is challenging enough. An even more difficult game is attempting to figure out which stocks and sectors stand to benefit from specific legislation coming out of Congress in the months and years ahead," she writes. Benz says investors should think twice before repositioning their portfolios solely based on what they believe will happen in Congress over the coming months.

[See U.S. News's Why the Dow Usually Rallies After Midterm Elections.]