Avoid the 7 Common Pitfalls When Investing

“(MoneyWatch) Who among us has not made a costly financial blunder? Come on; admit it — we all make some dumb moves for which we have to pay a pretty penny.Research by the Consumer Federation of America and Primerica found that two out of three Americans say they have made at least one “really bad decision,” and almost half of those questioned (47 percent) acknowledged that they had made more than one financial bad decision. The median cost of these bad decisions was $5,000, but the average cost was $23,000.

That we make financial boo-boos is not surprising, but the report also found that a large majority of those surveyed believe their ability to make financial decisions is “good” or “excellent,” despite having made costly financial mistakes in the past. “Considering their past mistakes and the complexity of the financial services marketplace, we were surprised at how highly most middle class Americans rate their ability to make a variety of financial decisions,” said CFA Executive Director Stephen Brobeck.

Call it the “Lake Wobegon Effect,” named after the fictional town where author Garrison Keillor noted that “the women are strong, all the men are good looking, and all the children are above average.” The “Lake Wobegon Effect” has come to mean the tendency to overestimate one’s capabilities. In social psychology, it’s called “illusory superiority”.

Of course, if we are all so smart and confident in the world of finance, why are we shelling out thousands of dollars to cover our bad decisions? Even if you are from Lake Wobegon, you may be interested in these mistakes that I saw frequently when I was an investment advisor:”

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