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By Jason Stipp | 08-01-2010 12:33 PM

Benz: Three Investments I Wouldn't Buy

There are sensible alternatives to these poorly used investments, says Morningstar's director of personal finance.

Jason Stipp: I'm Jason Stipp for Morningstar. In investing, as in a lot of endeavors, an important but sometimes overlooked metric of success is simply to avoid mistakes. With the proliferation of investment vehicles out there, there is a lot of opportunity for investors to choose poorly and use poorly.

In that vein, Christine Benz, Morningstar's director of personal finance is here to talk about some investment types that she just wouldn't touch. Christine, thanks for joining me.

Christine Benz: Jason, nice to be here.

Stipp: So you wrote an article recently about "Just Because You Can Doesn't Mean That You Should" and the article was talking a little bit about all the different options that investors have and with a lot of them, they can get into some trouble. So you have three different categories of investments that you would stay away from as an investor. Let's take it from the top and tell us about the first one.

Benz: Well, the first category and I lump these two groups together, would be sector funds as well as region-specific funds. And the reason, I would say most investors should avoid them, Jason, is that first of all, they are likely to be redundant. If they've got a well diversified portfolio, they probably already have exposure to that sector or region. So they are redundant.

And then the other thing that I come back to is that investors' timing with some of these funds is terrible. So we have the statistic called Investor Returns on the site, so you can see what the typical investor actually earned in a fund, and what you often see is that the investor returns are lower than the funds published total returns, because investors have themselves a disservice with poor timing. And what we see is that with some of these narrowly focused categories, investors' timing is the worst of all. So that's another strike against these funds in my book.

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