by Archie M. Richards, Jr.
December 24, 2007

My July 23, 2007 column presents "Ten Mistakes Commonly Made by Investors." Well, there are more than ten. Here are additions:

Ignoring costs: We're talking about high commission costs on stocks and bonds, high operating costs of mutual funds, and high sales costs on variable annuities. On average, the S&P 500 Index rises a little over 10 percent a year. Costs of more than 1 percent bite too heavily. America's investment industry makes too much money. Lighten up on your costs and keep more for Number One. (That's you.)

Not understanding the power of compounding: When you invest and leave the money in to compound, your annual returns (dividends, interest, and capital gains) are based on the amounts you invested that year plus the amounts invested and reinvested in previous years. At first, the amounts invested in previous years don't add up to much, and the compounding effect is insignificant. But as time passes, the amounts previously invested and reinvested overpower those that are invested currently. After 20 years - and especially after 30 years - the effect of compounding is truly magical! (For more, see my column dated 4/28/03.)

Paying too much attention to your portfolio: As a general rule, the more often you review your portfolio, the worse your returns. The portfolio interests you, right? You're absorbing investment news, right? Those two are a toxic mix. Some guy on television, who knows no more about the future than you do, says that the amorphous "they" think the prospects of such-and-such a stock or such-and-such an industry are poor. Gosh, you happen to own that stock or that industry. To protect your portfolio, you sell it. Bad move. It has already gone down, and you sell not long before it rebounds. Or, on good news, you buy what "they" consider sizzling hot - before it starts falling. Lay off the frequent reviews. Find another hobby. Check your portfolio once a year for possible rebalancing and otherwise leave the darn thing alone.

Sticking to U.S. stocks: There's a whole world out there, and most foreign economies are growing like gangbusters. The value of U.S. stocks is less than half the value of stocks of other countries. Sure, there's more political unrest abroad than at home. You're probably aware, for example, that a lot of bad stuff has been going on in Pakistan - martial law, a bitter election, and murderous explosions. Surprise, surprise! The nation's primary market index has risen 40 percent this year and more than 400 percent in the last five years! You wouldn't want to concentrate on Pakistan alone, of course. But use mutual funds or exchange-traded funds of foreign stocks to spread your money around the world. Most nations are growing faster than ever before.

Underestimating the lifespan of you and your spouse: Medical science is advancing ever more rapidly. You'll probably remain active longer than you think. Get your money working to support that long retirement and do not, I repeat, do not sell your stocks when you begin retirement. You'll need continued growth.

Failure to spend principal as well as income: Your investment return comes from three sources: dividends, interest, and net appreciation of value. That last one is a biggie. If you need income, it's available for you to use. For example, say your well-diversified portfolio pays dividends and interest of 2.5 percent a year. But you need 5 percent to support your retirement. Take the additional amount from capital. Concentrate on your portfolio's total return, including appreciation of value. (See How to Receive More Income dated 12/17/07.) Going for gains reduces taxes, too, since long-term capital gains and dividends are taxed at a lower rate than interest.

Failure to accept employer matching: Employer contributions to your 401(k) plan is found money, almost as good as picking up cash off the street. Contribute as much as necessary to take maximum advantage of your employer's matching. Don't consider your contributions as losses. They're wonderful gains.

Your best investment tool is common sense.