Avoiding Last Minute Financial Temptations

I was at a large electronics store looking for external hard drives (always good to keep data backed up) a couple of weeks ago.  The checkout lines at this store are really long, and curiously, they wind by shelves and shelves of candies and snacks.  In the minutes it takes to wait your turn, I noticed about half of the customers picked up a candy bar, and virtually all of the kids who were there shopping with their parents asked for some snack.  These last minute marketing techniques are also used in investments, although maybe in a more subtle fashion.  Given that off-the-cuff decisions are often impulsive, the downside of investing in the wrong item will probably have less impact on the wallet.  Here are some ways to avoid these temptations:

–Do not be distracted by temporary marketing gimmicks — many banks used to attract customers by offering gifts, and many investment firms offer gifts or temporary discounts. Unfortunately, once the introductory period is over, regular fees and costs catch up.

–Be mindful of fees – the impact of high fees on things like mutual funds is too-often ignored by most investors.  These can add up over time.  To avoid this hit to your portfolio over time, look for low-fee options.

–Do not invest impulsively because something new came up – new products are always marked to sound sexy.  If you’ve researched a product well, be sure it fits into your portfolio.

–Look at the fine print — I once purchased a fund that was labeled as an international dividend fund in an effort to diversify my US dollar exposure. The fund was benchmarked to an international divided index.  Unfortunately, when I looked at a list of total holdings, I realized that 40-50% of the holdings were US holdings.  Fortunately, I won’t make that mistake again.

shared at this week’s Carnival of Personal Finance