Three Investment Mistakes That Are Draining Your Portfolio

Most folks just want a hot stock tip...

These folks will likely never truly grow their wealth. And when a crisis comes, they'll be the first to panic.

If you've followed my investment newsletters – my health-and-wealth letter Retirement Millionaire, my income-focused letter Income Intelligence, and my high-end, options-trading service Retirement Trader – you know that in each issue, I not only recommend great businesses at good prices... I also give you a hefty dose of education and empowerment.

Finding investments that increase the size of your portfolio is just one part of being a successful investor. Preserving your wealth is an essential part as well.

Today, I'm sharing three common mistakes people make that drain their money.

If you avoid them, I can almost guarantee you'll be on track to save yourself thousands of dollars in the next decade...

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No. 1: Avoid Insurance as an Investment

There's an idea floating around out there that whole-life-insurance policies are a great way to build wealth and income for your future...

The idea is that whole-life-insurance policies allow you to save up your own money and get insurance for your family in case of death. Late in life, you can draw down on the cash value of the policy to support your idealized lifestyle... Or if you die early, your family will get paid the agreed insurance amount.

But that sort of protection can be had with much cheaper term-life-insurance policies. And the big trouble with whole life is the fees. Whole life typically takes a big, upfront commission when you start saving. If you understand the phenomenon of compounding, you know that a small change in your savings early on can lead to a big change in your wealth.

If you put away $1,000 per year with investment returns of 7% starting right now, you'd have $44,865 in 20 years. One program I've heard about takes nearly 25% in fees out the first year. That's a joke. Don't ever do it.

Under those terms... you'd end up with just $40,995 after 20 years. That means $1,000 of savings today is worth $4,000 in the future. So why pay a big chunk of your most valuable savings to fees? You've started in a hole, and you'll never climb out.

Years Start Now Start One Year Later
5 $7,153 $5,750
10 $15,783 $13,816
15 $27,888 $25,129
20 $44,865 $40,995

Added to that, the most generous whole-life policies pay about 4.5% a year. The stock market returns about 8% a year on average. So you're not only starting behind, you're running at a slower pace.

Also, whole life only works if the insurance company is still able to pay you in 30 years. In this day of low interest rates and low returns for insurance companies, that's a real risk over the next decades. Avoid life-insurance products.

No. 2: Don't Pay Front-Loaded Mutual-Fund Fees

Much like whole-life-insurance products, some mutual funds have fee structures that take a big chunk out of what you invest on the first day... up to 5.75%.

That means if you buy $50,000 worth of a front-loaded mutual fund, you start off $2,875 in the hole. Over 20 years, this is easily worth the value of a car in retirement.

The argument for front-loaded mutual funds is that they have lower annual fees, so you make out better over the long term. This is sometimes true, but you'd need to hold these funds for at least eight years to come out ahead. And the average investor holds a mutual fund for 3.3 years.

Do what I do and go for the no-load mutual funds and closed-end funds.

And never invest in a mutual fund without reviewing its fees. You can do this quickly by going to the financial information website Morningstar, entering a fund's ticker symbol, and clicking "expense."

No. 3: Never Use Market Orders

When you buy a stock or any security on your online trading platform, you can use two types of orders: a market order or a limit order.

A market order will fill your order essentially immediately at any price. Using one is like telling your broker, "Buy me this stock for whatever price you can get."

A limit order sets the maximum price you are willing to pay, and it will sit unfilled until your broker can get that price or less (or until you cancel the order). It's like telling your broker, "Buy me this stock, but only if you can get it for less than $10" (or whatever price you specify).

If a stock price is moving higher, you can easily pay too much for a stock using market orders because you've given up control of the price you pay.

Don't use market orders – use limit orders instead. Set your price at the same price you see in the market, and then wait. You never want to be the sucker that pays the worst price of the day.

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