Press Release

Unwary Investors are Making the Same Costly Errors Today

As the financial markets remain unsettled, Texas investors who are without long-term financial plans are making the same five costly errors over and over again, according to a warning issued today by Beaird Harris Wealth Management, Inc., an investment advisory firm in Dallas, Texas.

Beaird Harris Managing Director, Steve Lugar, CFP® said: “Uncertainty and confusion are the No. 1 enemies of the investor who operates blindly and without the benefit of a long-term plan. When you are trying to read uncertain market signals every day and end up jumping erratically from the one hot trend or product to another, the only thing that is likely is that you will end up worse off than when you started. We want to encourage investors who are grasping at straws today to take a deep breath, calm down and get focused on a real plan.

The five most common investor mistakes focused on by Beaird Harris include: chasing returns on asset classes that have done well recently and ignoring broad diversification; treating “hot” investment alternatives (such as hedge funds and private equity funds) as though they are asset classes; taking a short-term view of tax avoidance; over-concentrating in real estate; and ignoring the unintended consequences of today’s most popular mortgage product; the adjustable rate mortgage. 


  1. Giving short shrift to U.S. small and growth opportunities by chasing returns to exotic foreign destinations. Because they have been hot for the last three years, international investments may now be overloaded in the portfolios of some investors if they have failed to rebalance their portfolio. Investors tend to keep chasing whatever has done well lately, many times to the detriment of a broadly diversified portfolio and their own financial well-being. 

  2. Rushing into real estate (often on a local and undiversified basis) in exactly the same way that people stampeded into tech stocks in the 1990s. Steve Lugar said: “Real estate is to investing in 2005 what tech stocks were to investing in the middle and late 1990s. And I say that even though much of the talk you hear today about a possible real estate bubble may be overstating the danger to investors. But the reality is that it won’t take much of a correction in real estate prices to put investors who are over-concentrated in real estate into an extremely painful bind. Real estate is fine as part of most investment portfolios, but if it throws off your overall diversification, you are setting yourself up for a fall.” 

  3. Treating “hot” investment alternatives (e.g. hedge funs or private equity accounts) as though they are asset classes – when they are not. Though this is a perennial problem for “plan free” investors who latch on to whatever is being talked up in the news media and among colleagues, two of the most-discussed products of today – hedge funds and private equity accounts – are, in many ways, even more volatile and less liquid than the “hot” products of previous years. 

  4. Taking a counterproductive, short-term view of tax avoidance. For example, investors buy stock funds within annuities in order to defer taxes and succeed in doing so. But such an approach forfeits favorable “long-term capital gains” (taxed at a maximum of 15%) by converting the gain to “ordinary income” which is taxed at up to 35%. The annuities were sold to the client when the individual in question was early in their accumulation years and now they find out that at retirement, they are facing the same tax obligation. The drawbacks are several for individuals in this situation: (1) they are still in the highest tax bracket; (2) they may increase the tax owed on their social security income; (3) if they don’t touch the annuity, they disinherit themselves; and (4) their children will end up paying the taxes after their death. Unlike stocks and stock funds that may be left to heirs without any resulting income tax, annuities are not afforded this luxury.

  5. Ignoring the law of unintended consequences with regard to the type of mortgage on their home. Steve Lugar said: “While true that ever popular adjustable rate mortgages and more recently, interest-only mortgages, enable a homebuyer to afford a much more expensive house – that may not be a good thing. More than 30 percent of new mortgages are interest only and a larger number have an adjustable rate. If buyers can’t afford the house now with traditional fixed rate mortgages at near 40 year lows, I have to wonder if they have planned for the possible consequence of several rate hikes on their adjustable rate mortgage.” 

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