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Common Errors
How to Avoid the 8 Biggest Investment Mistakes
. Forecasting is the single most difficult task with designing portfolios. Although not a perfect solution, using historical returns rather than making forecasts is generally considered more appropriate for individual investors. 
6. Overestimating the level of portfolio diversification. Diversification is one of the 10 cornerstone principles of asset allocation and is key to reducing risk, namely company-specific risk. To properly diversify, you should hold sufficient quantities of not-too-similar securities. Consider index funds for a quick and easy solution.
7. Misjudging the impact taxes have on net return. Taxes can have a severe negative impact on your net return. As a result, balance tax and investment considerations, but remember that suitability and appropriateness of an investment take precedence over tax consequences.
8. Confusing diversification with asset allocation. Many investors mistakenly believe that a properly diversified portfolio is a properly allocated portfolio. This is the leading misconception of asset allocation. Properly allocate your portfolio among the different asset classes first and then diversify the investments within each asset class.
By avoiding these common mistakes you will design an optimal portfolio that provides the best opportunity to achieve and protect your financial independence, control and security.
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