Over 90% of investors have mistakes in their portfolios, according to a recent study. Many of the most common investor mistakes are easily corrected, but you have to know about them first before you’ll realize that they’re costing you money.
Investor mistake #1: Diversification
Automated investment service SigFig conducted a study to find out what the most common investor mistakes are. The firm tracked more than $350 billion worth of assets and discovered that nine out of ten investors have poor diversification in their portfolios, and this is coming a quite a high cost. Last year, one-third of average investors ended the year with returns that were either in the negative or at zero.
The biggest issue was investing in single stocks, as six out of ten investors have over 10% of their portfolio invested in one stock. Another big investor mistake in the area of diversification is being biased toward their home country. SigFig reported that 60% of investors had less than 10% of their equity portfolio invested in international stocks.
The firm also found that investors tend to have a high concentration in equities, with half of investors having more than 80% of their portfolios in stocks.
Investor mistake #2: Fees
Additionally, SigFig claims six out of ten investors pay too much in fees. The firm identifies “high-cost” funds as those with an expense ratio of at least 0.5%. The firm reports that 60% of investors have at least one “high-cost” fund.
Also investors who use a financial advisor pay, on average, 1.3% of their assets in management fees, which amounts to an average of $7,000 per year.
Investor mistake #3: Neglect
And third, the firm reports that one-quarter of investors’ portfolios have signs of one of two extremes: neglect or overtrading. According to the study, 27% of investors have at least 10% in idle cash in their portfolio, while 25% of investors haven’t rebalanced or contributed to their portfolios within the last year.
Also 20% of investors have a portfolio turnover rate of at least 100%. Interestingly, this study included both men and women, but another recent study indicated that women tend to churn their portfolios less than men, making this issue more of a male problem than a female one.
Investor mistakes are costing us
According to SigFig, the average investor underperformed a portfolio that was 60/40 balanced by an average of 60%.