The 8 Biggest Mistakes When Designing Portfolios - and How To Avoid Them

Are you as good an investor as you think? Do you consider yourself a knowledgeable investor able to anticipate and avoid nearly all pitfalls associated with investing ? Chances are , you're one of the common mistakes that can cost you hundreds or even thousands of dollars , or worse, your financial independence , control and security .

"I see people making the same costly mistakes over and over, " says Scott Frush , certified financial planner and author of Optimal Investing: How To Protect and Grow Your Wealth With Asset Allocation ( Marshall Rand Publishing , available by calling 1-800-247 -6553 ) . " But small leak can sink large ships . "

Scott Frush is president of Frush Financial Group and editor of the Journal of Asset Allocation . Discover some of his investment secrets in the free report , 15 golden rules for building optimal portfolios , available at

Here Scott Frush shares eight common but costly mistakes investors make when designing their investment portfolios and shows how to avoid them.

1. SILENT RIGHT ASSET asset classes and subclasses. Several pioneering studies have concluded that the way you manage your portfolio , instead of investments you select or when you buy or sell them to assign determines the majority of your investment performance over time . As a result , make every effort to assign to all appropriate asset classes and asset subclasses your portfolio.

2. IMPROPER SELECTION ASSET CLASS WEIGHTINGS . By selecting inappropriate asset class weightings a portfolio can acquire a lower return and experience greater risk than expected . Therefore do not be above or below the weight each asset class , so risk and return trade - off profile of your portfolio to improve .

3. Underestimation of the impact of inflation . Inflation , the real value of your portfolio erode over time , thereby placing your future financial security at risk. As a general rule , the longer your investment horizon , the more you must assign to equity investments . For shorter investment time horizon , emphasizing fixed income and cash and equivalent investments.

4. Neglecting the EFFECTS OF PORTFOLIO MANAGEMENT COSTS . Over time , the compounding effect of portfolio costs are quite large , so you rob a better return . For this reason , you should focus on minimizing costs of portfolio management , in particular the trade costs, consultancy fees.

5 . MAKE INACCURATE return expectations . Forecasting is the most difficult task in designing portfolios . Although not a perfect solution , using historical returns instead of making forecasts is generally considered more suitable for individual investors .

6. Overestimation LEVEL portfolio diversification . Diversification is a cornerstone of the ten principles of asset allocation and is the key to reducing risks, namely company-specific risk . To diversify properly, insufficient quantities - profiles are stored off - . Too - similar securities with similar risk and return trade Consider broad index funds for a quick and easy solution .

7. Ignore IMPACT TAX TO NET RETURN . Taxes can have a serious negative effect on your net return . As a result , balance tax and investment considerations , but remember that the appropriateness and suitability of an investment override tax consequences . Never hold an inappropriate investment .

8. Confusing DIVERSIFICATION WITH ASSET ALLOCATION . Many investors mistakenly believe that a well-diversified portfolio is a well- allocated portfolio. This is the biggest misconception of the asset allocation . First spread your portfolio between the different asset classes and diversification of investments within each asset class over .

By avoiding the biggest mistakes you design an optimal portfolio that has the best chance to achieve your financial independence , control and security and protect offers .