Monday, November 2, 2009

How to Avoid Dumb Investing Mistakes

By: Lily Mei

Due to recent economic downturn, it has affect many investors decision to moved their money into cash or bonds this time around. To avoid any as I call it “dumb” investing mistakes, the best remedy as Christopher Long, a certified financial planner recommends is to set up a “play” account where you can trade the market to your heart’s content without harming your long-term investments.

He also states to transfer at least 5% of your total assets to an Independent Retirement Account. The reason behind transferring to an IRA account is that with this account any gains you incur buying and selling securities will be shielded from taxes until you withdraw the proceeds, hopefully after you have already retired.

Long also mentions that the only downside with this account is that in the case where you do incur losses, you won’t be able to use them to offset gains in other accounts, as you would be able to do so if you held securities in a taxable account.

Setting up the “play” IRA accounts seems to work particularly well for couples. Long often says that he “encounter husbands who are new and market junkies and incorrigible traders, but whose wives are anxious to take a much more hands-off approach to investing.” With this play account, it gives the husband the freedom to trade and their wife the comfort that in the worst-case scenario, the damage will be limited.


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