By Sheyna Steiner for Bankrate.com
Did you ever feel like you might be doing entirely the wrong thing when it comes to your investments? You may be making a few mistakes, at least, according to a study released today by the online investment firm, SigFig.
Here’s what they found:
- 90 percent of investors could be better diversified.
- 60 percent own at least one high-cost fund. That’s defined as an expense ratio of 0.5 percent or more.
- 25 percent have not rebalanced or contributed to their accounts in the past year.
- 20 percent may be overtrading: They have a turnover rate of 100 percent or more.
Minor flaws, right? They are actually costly. Last year, one-third of investors ended the year with negative or zero returns, SigFig reports. The large-cap benchmark index, the S&P 500, was up more than 11 percent for the year.
SigFig aggregated anonymous data from investors who had synced their investment accounts with the service. The minimum sample size in each analysis was 250,000 investors.
How to fix your portfolio problems
SigFig’s study pointed out three common problems when it comes to diversification.
Problem No. 1: Of the portfolios containing stocks, 60 percent devoted more than 10 percent of the portfolio to one stock.
Fix: Experts recommend allocating no more than 2 to 3 percent to an individual company.
Problem No. 2: 50 percent of investors dedicate more than 80 percent of their portfolio to equities.
Fix: This one may be debatable, depending on the age and time frame of the investor. It’s not uncommon for some experts to support young investors going all in or nearly all in on stocks. For those age 55 or higher who are planning to retire in 10 years, such a high allocation to stocks represents more risk than they should probably take.
Problem No. 3: 60 percent of investors shun international equities, with less than 10 percent of their portfolio allocated to other countries.
Fix: The stock market doesn’t end at America’s border. The U.S. accounts for 52 percent of the global stock market. Diversifying across countries can lower risk in your portfolio because owning investments with a low correlation to one another cuts market risk. If the stock market tanks in the U.S., you still have other investments in other parts of the world that may be doing well.
Do you recognize any of these mistakes in your portfolio?
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.