The Four Biggest Pitfalls

The Gone Fishin' Portfolio is an antidote to all the noise and confusion in financial markets. It is the distillation of much of what I've learned over more than two decades as a research analyst, investment advisor, portfolio manager, and financial writer. It is the key to financial freedom because it forces discipline and eliminates what I consider the four biggest investment pitfalls.

Let me detail what they are and show you how this investment strategy avoids them:

1. Being too conservative. Investors who put their money to work exclusively in money markets, certificates of deposit and tax-free bonds generally think they're just being careful and sensible. But, unless they're already independently wealthy, they're not.

The Gone Fishin Response: The Roman philosopher Tacitus rightly observed that "the desire for safety stands against every great and noble enterprise." Invest too conservatively and you risk outliving your money, especially given today's life expectancies.

Remember, shortfall risk - the likelihood that you'll outlive your savings - is the biggest financial risk you face. Sure, no one wants to handle retirement assets foolishly. Yet being ultraconservative can be just that. Fortunately, our Gone Fishin' Portfolio contains 10 different asset classes - each of which is likely to outperform cash investments over time.

2. Being too aggressive. There are two reasons investors generally get too aggressive with their assets. One is that they're overconfident in their abilities or, in some cases, the abilities of their financial advisor. The other reason is that they realize they've fallen behind and have decided they're going to get super aggressive with their investments to make up for lost time.

The Gone Fishin' Response: According to the 2009 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), 40% of workers have less than $10,000 in retirement savings. Another 13% have less than $25,000. In other words,more than half of all workers have less than $25,000 saved for retirement. That's unfortunate.

But if you haven't saved enough, it's highly unlikely your salvation will come in the form of options, futures, day trading, or margin accounts. Instead, investors need to spend less, save more, and use a realistic approach to growing their assets.

3. Trying - and failing - to time the market. It seems so easy when you imagine it: You'll be in the market for most of the run-up, and out of the market for most of the sell-off - then back in again for the next rally.

Except it doesn't work that way. What market timers invariably find, if they keep at it long enough, is that they're out during some of the good times and in during some of the bad times. The end result is high turnover (which leads to high costs), plenty of capital gains taxes, and substandard performance.

The Gone Fishin' Response: Yes, there are times when the market as a whole looks incredibly cheap, as it did in 1982. And there are times when the market appears awfully expensive, as it did in the spring of 2000. But the key to making money in the market is time, not timing.

However, there is a good living to be made offering market timing advice. So it shouldn't surprise you that "professional" market commentators don't see things the same way.

4. Unwise delegation. Delegators are investors who - fearful of being too conservative or two aggressive and rightly convinced they can't time the market - turn everything over to an insurance agent, planner, or full-service broker.

The Gone Fishin' Response: Unfortunately, brokers trade for commissions. Insurance agents sell some of the highest-cost products in the financial industry. And, over the course of several years, even planners will convert a substantial portion of your assets into their assets. Fortunately, the Gone Fishin' Portfolio - which you can easily implement on your own - sidesteps the unwise delegation pitfall altogether.