The 3 costliest mistakes

Financial institutions that create and/or sell ETFs have done a superb job of shaping the terms of reference surrounding these investments. Every new ETF that comes on the market spurs lengthy discussions about the undeniable advantages of low-MER ETFs, compared to high-MER conventional mutual funds. This, though, is beside the point. It makes far more sense to compare low-MER ETFs to low-MER index funds. Focusing on ETFs or index funds can save you one or two percentage points a year, compared to investing in conventional mutual funds with yearly MERs in the 2.0% to 2.5% range. But these cost cuts do nothing to protect you against what I’d call the three deadliest and three most common investor mistakes: Misguided attempts at market timing. Some of the least successful investors I’ve met are those who sit through most of a market downturn, then sell when stock prices are close to their lows. Failure to diversify. You can compound timing errors by getting back in after a big rebound in prices, but confining your buys to one or a few stocks or areas that seem “safe.” Failure to consider investment quality. You can make things even worse by buying low-quality stocks, which involve extra risk. Focusing on ETFs can cut your yearly MER costs. But those savings pale beside losses due to these three all-too-human errors.