Friday, December 31, 2010

FinancialEdge: Worst Financial Decisions Of 2010

People, businesses and governments may not meet the same mistake twice, but the mistake family is prolific and global, so it is a good bet that they will all meet multiple cousins, nephews and other relations of past mistakes. In other words, no matter what number may be printed on the calendar, there is always a host of mistakes to choose from when analyzing a year in the markets. Here are some of the financial decisions that took place in 2010 that deserve a second look in hopes of avoiding them in 2011 and beyond. (For related reading, see 10 Reasons Real Estate Could Rebound In 2011.)

Individuals:
Piling Blindly Into Gold
Some will argue that there is always room for precious metals in a well-diversified portfolio, but the questions of "how much" and "which ones" are too often ignored. Gold was a strong asset in 2010, up about 25%, but silver did almost three times better - so those who obsessed about gold and ignored other precious metals really lost out. Moreover, those who rushed to sell their jewelry through those "convenient" mail-in services or buy the gold bullion and coins advertised on TV very likely got taken for a ride in the process. Diversification is a good thing, but too many gold bugs are losing sight of one important detail: Throughout America's long history, betting against the long-term prospects of the country has been a losing bet.

Bad Decisions After A Job Loss
Job loss, and the financial stress that goes with it, is a terrible thing indeed. What can make a temporary situation into a permanent issue, though, is not dealing with the problems in the right way. Some people buy into the notion of "lifetime earnings" and the idea that shortfalls in the early years can be ignored because they will earn more down the line. In these times, then, some people borrow heavily with their credit cards and dip into retirement savings to maintain their standard of living. It is absolutely understandable to go into debt and to do what must be done to put food on the table and keep the heat on. But it is almost unfathomable to read about people looting their 401(k) (and taking the 10% IRS tax penalty) just to go on spending sprees or vacations to "lift their spirits".

Please follow this link for the full piece:
http://financialedge.investopedia.com/financial-edge/1210/Worst-Financial-Decisions-Of-2010.aspx

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