Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Jason Stipp and Christine Benz | 07-18-2013 03:00 PM

5 Mental Mistakes That Can Punish Your Portfolio

Even seemingly small mistakes can take a big toll on your portfolio, says Morningstar's Christine Benz.

Jason Stipp: I'm Jason Stipp for Morningstar. Several of us have heard of the big behavioral pitfalls, such as recency bias or confirmation bias, but Morningstar's Christine Benz says there are several smaller hang-ups that can also take a toll on your portfolio. She is here with me today to explain.

Thanks for joining me, Christine.

Christine Benz: Jason, it's great to be here.

Stipp: You say that there are some smaller mental mistakes that we make that might sound very familiar to a lot of investors. The first one is, assuming that a complicated investment is better than a simple one?

Benz: Right. One thing I think about is that if someone has quite a straightforward portfolio--maybe some cash holdings, a bond fund and a stock fund--that probably gets them 97% of where they need to go in terms of constructing that portfolio, assuming that they have those allocations right.

But I think people say, oh my goodness, there is this huge investment industry; it can't really be that simple, can it? And that's why I think people often get sold on complicated, sometimes expensive products, that they don't really need, because they are not satisfied with settling for the simple portfolio.

A great recent example came up when we were doing our Portfolio Makeover Week. There was a person I was working with. She had assembled a portfolio, actually with the help of an advisor, that had about 10 or 12 different sector-specific U.S. funds. And in aggregate, when I X-rayed it, what I saw was sector exposure that in many cases was very close to the S&P 500's or a total market index. So, she really wasn't getting a lot of bang for her buck with all that complexity and some extra costs.

So, I think sometimes investors do have a tendency to be a little bit overwrought. They assume that simple isn't necessarily better when oftentimes it really is.

Stipp: Keep it simple, always good advice for investors.

Number two, Christine, somewhat perhaps related to number one, is the notion we have that we get what we pay for, which doesn't always ring true in investing?

Read Full Transcript

{1}
{1}
{2}
{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
{1}
{5}
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article
    Username: