Drawdowns are your biggest enemy. They can impair your portfolios ability to continue towards an investment goal by years. Every investor needs to have a keen eye when constructing their portfolios and not fall into the common traps which may lend yourself over exposed to such losses.
Start with looking at your exposure to market caps. Are you overexposed to small caps? Mid caps? These are typically high beta stocks that can rack up massive losses when seas are roughest.
Next- think about individual sectors. Are you overexposed to energy? Tech? Marijuana stocks? In good times these can be a cash cow for your portfolio, however, downturns can quickly rob you of years’ worth of gains in very short order. Think about concentrations when you decide to allocate effectively.
In addition to drawdowns, you will want to be thinking about fees and hidden costs of investing. These include broker fees, however many brokers have now adopted a “free commission” model. Beware, however, that these brokers have astronomical borrowing costs that were previously less extreme.
Additional fees for Mutual Funds and ETFs with high management costs upwards of one percent and more are very available and actively advertised on many broker’s software. It has been reported that many low cost funds outperform the high fee funds on a continual basis. there is no need to have an expensive fund when there is a comparable outperformer.