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Bankrate.com rounded up four main regrets of amateur investors as they look back over their decisions during the past year.
Regret 1: No emergency reserves. In good times we don't want to miss any fun by putting back some of the cash we're earning. When the unemployment rate started soaring last year, so did the American saving rate. We scrambled to build emergency funds but most likely will abandon this practice once our fear subsides. This sets us up for another panic the next time trouble comes.
Prevent slipping out of the saving habit by establishing an automatic, monthly transfer of funds from checking to savings. You can also instruct your bank or credit union to sweep X-amount from savings into a short-term CD when the balance holds enough for a purchase. Having the money in short-term CDs keeps you from being tempted to raid the emergency stash for silly things, as there is usually a small penalty for cashing in CDs prematurely.
Regret 2: When the market takes a header, don't listen to TV money shows or the stock market pundits. Change the channel and stay the course. Don't call up Synthia or whatever your automated stock funds voice information system is called and listen to her reciting gloom and doom.
Regret
3: Don't over-invest in "sure things." Most people aren't savvy enough about stocks or the market to successfully pick and invest in stocks.
Studies show that the human brain's "wanting" system strongly activates when an asset goes up in value, driving us to buy more. So even if you've sworn that you'll never again put the bulk of your wealth in a single asset, like a house or a stock fund, what's to stop your brain from getting excited when the next thing rolls around?
Hire a financial adviser to bring you back to reality and dampen your urge to buy, buy, buy. Pay this professional to create an investment plan, and put this in writing as an "asset allocation plan" to dissuade you.
Regret 4: You didn't read the fine print on a mortgage contract and now can't afford the higher payments on your adjusted-rate loan. Instead of delving through loan documents and plotting out just how much payments can rise, we're lured into complacency when we hear, "You can always refinance" or, "If you're moving again in a few years, you don't have to worry."
Don't take on debt without reading all the fine print. The federal government aims to make that easier with proposed reforms that would require lenders to provide one-page outlines of the risky features of loans for potential borrowers.
Complex loans will probably remain a part of the homebuyer landscape.
If you are unwilling or unable to read and understand loan terminology, stick with plain vanilla -- a fixed-rate mortgage.
Submit Action Line questions by calling 699-8888 or by e-mailing phil.mulkins@TulsaWorld.com or by mailing it to Tulsa World Action Line, PO Box 1770, Tulsa OK 74102-1770.
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