27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
Most investors strategically position a portion of their hard-earned money in mutual funds. The appeal of mutual funds lies in their diversification across stocks of different market caps in an array of sectors. However, mutual funds are not infallible.
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If you are considering investing your money in a mutual fund, you should be aware of the common mistakes people make when taking this route. Take the help of an expert and the money you invest in one or several mutual funds will be that much more likely to work as hard for you as you did to obtain it. Let’s take a look at the most common mistakes investors make when investing in mutual funds.
Pitfall #1: Assuming Mutual Funds are Risk-Free
There is a common misconception that investing in mutual funds is risk-free or has minimal risk. The truth is mutual funds have an inherent level of risk, albeit one that is lower than an investment in a single stock. Mutual funds diversify risk across a plethora of publicly traded companies. The logic in this approach is to minimize potential downside in the event that one or a couple companies or overarching sectors under perform.
It is possible to lose a significant amount of money investing in mutual funds simply because they are a collection of stocks, each of which has its own unique level of risk. When in doubt, take the help of an expert so you can move forward with the guidance necessary to safeguard your financial nest egg.
Pitfall #2: Expecting Significant Short-term Returns
Mutual funds diversify risk across a basket of stocks, meaning some are likely to increase in value in the short-term while others decrease in value. Parking your money in a mutual fund is not likely to provide a significant short-term return on your investment. Rather, investing in a mutual fund is a wealth-building strategy that is likely to pay off over time as the stock market gradually increases. There is even the possibility that the money you invest in a mutual fund will lose value in the weeks, months and financial quarters ahead so don’t assume this investment vehicle is optimal for short-term gains.
Pitfall #3: Expecting Minimal Volatility
Investors who choose mutual funds over stocks often do so assuming there will be little or even no volatility. This is a faulty assumption as mutual funds consist of individual stocks that have the potential to prove quite volatile, especially if the market as a whole makes a major upward or downward move.
The moral of this story is an investment in a mutual fund has the potential to undulate just as much as individual securities. Sort through the mutual funds options to find those that consist of the stocks with the lowest betas and you will sleep soundly knowing the basket of stocks you invest in through the fund will prove less likely to significantly undulate as the market swings between peaks and troughs.
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Pitfall #4: Attempting to Perfectly Time the Entry Point
Timing the market or an individual mutual fund just right is nearly impossible. If you were to wait on the sidelines, holding out for a significant market-wide pullback, refusing to establish a position until you find an opportunistic entry point, you might be waiting months, years or indefinitely.
Instead of assuming you can time the market, gradually move your money into mutual funds as time progresses. This approach moves your money into mutual funds at different price levels, mitigating risk while providing upside potential as a gradual influx of money into the fund establishes positions at troughs, peaks and the points in between.
Pitfall #5: Assuming Taxes are a Non-factor
A mutual fund that sells a stock after you establish a position in the fund spurs a pro-rata gain distributed to the fund’s shareholders. In other words, this transaction result in taxes on gains earned in a fund that you might not have owned for a lengthy period of time, ultimately triggering taxation on income. You can sidestep such taxation by establishing your position through a tax-managed fund, meaning the gains won’t be taxed until funds are withdrawn.
Pitfall #6: Failing to Analyze the Fund’s Individual Holdings
Plenty of investors assume all mutual funds are sufficiently diversified across a wide variety of stocks, sectors and geographic locations. The truth is some mutual funds are not well-managed. Actively managed funds alter the composition of the fund as time progresses. Take a close look at the fund’s individual holdings and you might find it is over-weighted or underweighted toward a stock or sector you do not want in your portfolio. Perform your due diligence, review the individual stocks that comprise the mutual fund you have in mind and make decisions accordingly.
It is also in your interest to check in on the fund’s performance after establishing a position. Analyze the fund’s performance at least once each financial quarter to get a sense of whether it is meeting expectations. This analysis also provides an opportunity to review alterations to the fund’s holdings so you can determine if those individual stocks align with your unique investing goals. Alter your positions accordingly after these periodic reviews and you will rest easy knowing you have a comprehensive understanding of exactly how your money is invested.
Pitfall #7: Failing to Choose a Fund Based on Your Financial Goals
It is a mistake to choose a mutual fund based on its holdings as opposed to your unique financial aims. The merit of the holdings in the fund is not as important as your unique investment strategy and overarching goals. Take some time to consider what your end game is in the context of investing.
Once you have a comprehensive understanding of your overarching purpose of investing including a timetable for retirement, the stage will be set to carefully select mutual funds that align with your idiosyncratic investing goals. Use your personal finance endgame as the compass that steers you toward the right mutual funds and your selections will help you make it to your financial destination in a timely manner.
Author Bio
Lyle Solomon has considerable litigation experience as well as substantial hands-on knowledge and expertise in legal analysis and writing. He graduated from the University of the Pacific’s McGeorge School of Law and now serves as a principal attorney for the Oak View Law Group.
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.