Costa Rica Investing – Are You Making These Mistakes in Mutual Fund Investing?

Not having a strategy is probably the most frequent mistake in any kind of investing including mutual funds.

Many individuals select specific investment funds without giving much thought to an asset allocation strategy. The investor may actually define and identify their investment objectives, but then skip the next vital step in establishing a successful mutual fund portfolio: creating a detailed asset allocation strategy.

Without a well-defined, appropriate asset allocation strategy that accurately reflects individual investment objectives and preferences (time horizon, return objectives, risk tolerance, etc), the selection of mutual funds is haphazard instead of logical.

This normally results in mediocre portfolio performance.

Regardless of which asset allocation method an investor prefers, the important thing is to avoid the pitfalls of haphazard fund selection, develop a detailed asset allocation strategy which accurately represents your investment objectives and preferences.

Some investors are over-weighted in high-risk, non-diversified funds meaning they have a large percentage of total portfolio assets concentrated in funds with very high risk/reward characteristics, even though the fund types may actually reflect chosen investment objectives.

The result is excessive volatility in the price movement of these funds which, in many instances, can cause disappointing performance because the risk may be disproportionate to overall profit potential.

Over-weighting can occur with any type of risk tolerance, although it’s more likely to be a problem in more ‘aggressive’ portfolios.

Another problem that we encounter every day in creating globally diversified mutual fund portfolios for our clients is the duplication of holdings within mutual funds.

This doesn’t just occur in funds with similar names. Many mutual funds have different names and insinuate a different investment objective but you will often find that the ‘Emerging US Growth,’ the ‘US Small Cap Growth’ and that great ‘US High-Technology’ fund you’ve been reading about, all own many of the same stocks.

This is a difficult problem because mutual funds do change their holdings on a regular basis.

Many investors are experienced enough to address these problems on their own and to be able to effectively monitor their portfolios. However, for the vast majority of investors out there who have companies to run, jobs to do and families to raise, this is where you may want to consider hiring a qualified, international investment professional who can create a personalized financial solution so that you and your family can enjoy a better life.

If you are a sophisticated international investor who wishes to discuss how to invest offshore safely, privately and profitably in the world’s most respected offshore hedge funds than please Contact Us

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Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.