Dan Solin - Financial Frenemies, 6 investing mistakes to avoid

“6 Critical Investing Mistakes To Avoid At All Costs”

Dan Solin is a New York Times best-selling author who specializes in helping investors avoid victimization by the securities industry. A regular blogger for the Huffington Post, Dan empowers investors with information that helps them reach their retirement goals the right way.

In “6 Critical Investing Mistakes To Avoid At All Costs”, Dan and Greg discuss the following main points:

-a “frenemy” is someone who poses as a trusted friend or ally, yet prioritize their own interests over your well-being
-there are 6 “frenemies” in the financial industry we must be wary of
-always lean towards passively managed mutual funds

The financial industry—particularly the securities sector (think stocks, bonds, mutual funds, etc.)—is rife with advisors, brokers, and “experts” who use deception and a false sense of trust to mislead people in what is known as a wealth transfer scheme. The economic interest of these crooks is often in direct conflict with yours.

MARKET-BEATING BROKERS
Dan defines a “market-beating broker” as someone who claims that they can pick the right stocks that will perform better than other stocks. Because of his “expert prowess” at beating the market, he requires hefty commissions and fees, which he assures will be more than offset by the returns his algorithms, formulas, and strategies will produce. An overwhelming amount of data shows that no one has the expertise to reliably and sensibly beat the market on a consistent basis.

ACTIVE FUND MANAGEMENT
Mutual funds are managed one of two ways—actively or passively. Passive funds such as index funds track a given index and have minimal human interference. For example, the S&P 500 Fund tracks the S&P 500. Fees and risk are typically very low. Active fund managers, on the other hand, say that out of those 500 stocks, they can pick the 10 or 20 stocks that will outperform the others.

ALTERNATIVE INVESTMENTS
Hedge funds, private equity funds, master partnerships, and reinsurance funds are all examples of alternative investments, most of which are no better than actively managed funds. Their draw is often their aura of exclusivity.

MONEY MEDIA
Most financial media does a disservice to investors. The media companies generate revenue by attracting viewers; therefore, they cater to those companies that pay their revenues—large brokerage firms, investment banks, and fund families. The “gurus” who appear frequently on these shows usually work for one of the many companies in the securities industry trying to profit off of your money. Therefore, these experts often try to steer viewers towards a product or sector that will make their company the most money—practically the definition of “conflict of interest.” Dan strongly recommends you turn off CNBC, avoid the ticker tape, and stick with your globally diversified portfolio for the long term.

DIVIDEND STOCKS
Many people think that dividend stocks offer an attractive additional stream of income and means of diversification. However, in reality dividend stocks reduce diversification. Furthermore, dividends are by no means guaranteed, as we saw with General Motors in 2008 when the auto manufacturer reduced dividend amounts during a company crisis.

INVESTMENT CLUBS
While the number of investment clubs has decreased in the past few years, they are still a popular means of investing for many people. An investment club typically consists of a group of like-minded individuals who get together and chat about stocks, collectively picking stocks that are likely to outperform the benchmarks.