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3 Ways to Lose Money in 2010

If you frequent any kind of investment or finance-related websites, you've no doubt run across a multitude of articles telling you how to invest in the new year. There is no shortage of sources telling you where the next big money-maker in the market will be. But I'm here to tell you how to do just the opposite -- and lose big in 2010. Not everyone can be a huge investment loser, but if you follow these few simple tips, you'll be on the fast track to wallowing in red ink before you know it!

1. Blindly follow trends, just because everyone else is
When it comes to investing, nothing gets you behind the pack quicker than following the herd. Don't think about what makes sense for your portfolio or about current valuations -- just take your Uncle Mort's stock tips to heart. For example, investors seem to have reacted to 2008's market swoon by rediscovering their love for bonds. According to Morningstar data, through November of last year, bond funds saw inflows of $320 billion of new assets, while equity fund inflows remained relatively flat.

While a flight to perceived safety is understandable in light of what our economy is going through, bond investors are going to miss any further rebound by shifting assets out of the stock market too late. In addition, the Fed will likely start raising rates sometime this year, which means bond prices really have nowhere to go but down. Moving significant portions of your portfolio into bonds right now to avoid further short-term market drops is a surefire way to lag the market in the long run.

Likewise, make sure you jump head-first into the gold rush. Concerns over future inflation and general economic uncertainty have driven gold prices up tremendously in recently years. The SPDR Gold Trust ETF (NYSE: GLD  ) is up roughly 38% in the past year and up 165% over the past five years! Late-night infomercials have been urging you to sell your gold jewelry and get on board the gold train -- a sure sign that gold is entering a speculative phase. Perhaps gold prices have further to rise, but the truth is that over the long run, gold simply hasn't produced returns that are competitive with stocks. There are some solid gold-related mining stocks like Yamaha Gold (NYSE: AUY  ) and Gammon Gold (NYSE: GRS  ) that are worth owning, but making sensible investments is a sucker's game. Folks who want to lose money know they need to jump on whatever bandwagon is now leaving the station and ride it as long as the general public tells them it's a good idea.

2. Invest in whatever has been doing well lately
The stock market rally that started in March 2009 has been primarily focused on lower-quality stocks and troubled names, including beaten-down financials such as Wells Fargo (NYSE: WFC  ) and Bank of America (NYSE: BAC  ) . But a rally can't be sustained indefinitely on the backs of stocks with less stable financial conditions. I'm betting that higher-quality, blue-chip names are likely to be the next market leaders.

For example, top-tier health-care names like Pfizer (NYSE: PFE  ) and Johnson & Johnson (NYSE: JNJ  ) are reasonably priced options that are likely to benefit tremendously from impending health-care reform legislation. So if you're looking to lose money, that means that you should stay far away from stocks like that and instead stick to higher-risk, small-cap names with shaky balance sheets. After all, that's what's been doing well lately, and it's hard to shun a stock or area of the market that's doubled in the space of less than a year. So don't do the hard work of figuring out what sector or stocks are more attractive -- just extrapolate past performance into the future.

3. Be very afraid of the stock market
Investors are notorious Monday-morning quarterbacks, with the reactive investment approaches to match. That typically translates into a mass "buy high, sell low" mentality. After the market dropped in 2008-2009, suddenly bear-market funds and exchange-traded funds that short the market were all the rage. These funds attracted assets like never before as investors let their fear of the market take over. Of course, most of the market drop was over by the time folks actually bought into these funds, underscoring the rear-view mirror approach to investing so many employ. Never mind that because the last decade was so crummy for stocks, the next 10 years are likely to be above-average years. Just let your fears control you, and remind yourself that the market can't possibly do well over the long run. Stuff your money into bear-market funds and wait out the next decade on the sidelines.

Of course, if you're one of those crazy types who would prefer to actually make money, then you should check out the Fool's Rule Your Retirement investment service. With your free 30-day trial, you'll get personal financial planning advice on how to prepare for retirement and thoughts on what investments you should buy to reach your long-term goals. Getting rich slowly isn't for everyone, but it could be right for you!

No one knows exactly what the new year will bring for the economy or for the stock market, but if you want to enter 2011 with less money than you have now, following trends and chasing market performance are the surest ways to get the job done. It's up to you to decide whether you follow this path or step away from the herd and blaze your own trail in 2010.

Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement newsletter. At the time of publication, she did not own any of the companies mentioned herein. Pfizer is a Motley Fool Inside Value selection. Johnson & Johnson is a Motley Fool Income Investor selection. Click here to find out more about the Fool's disclosure policy.

Read/Post Comments (3) | Recommend This Article (18)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 12, 2010, at 2:39 PM, slviaugld wrote:

    "Perhaps gold prices have further to rise, but the truth is that over the long run, gold simply hasn't produced returns that are competitive with stocks"

    What is the long run?

    Here is a FIVE year chart (long enough?) showing Gold vs S&P, Dow Jones and Nasdaq

    At NO point did the stock indexes surpass gold in return.

    Over five years Gold is up over 150%, Nasdaq single digits and the other indexes at a loss.

    There is a macro trend that identifies the lack of luster investors give to our economc system that encourages wreckless borrowing and allows the federal government to print money as a means of encouraging more of the same.

    Gold, silver and hard and foreign assets can protect your portfolio from the excesses of out of control spending -like the AIG bailout that transferred untold billions from taxpayers into Goldman Sachs. Where did the money come from-they "borrowed it" from tax payers in secret.

  • Report this Comment On January 12, 2010, at 3:21 PM, DrRoberts1 wrote:

    Be afraid, be very afraid of Wells Fargo and Bank of America since "a rally cannot be sustained indefinitely on the backs of stocks with less stable financial conditions". Investment advice on the "MF" continues to almost be worth what one pays for it

  • Report this Comment On January 12, 2010, at 8:15 PM, xetn wrote:

    About gold: First, the 150% return in GLD you cite, really reflects the loss of purchasing power of the dollar. The other important point, maybe much more important, is gold (real tangible gold) has intrinsic value as a commodity. What is the intrinsic value of a dollar bill, besides the paper and ink?

    Think about the 50% devaluation of the Venezuelan currency over the weekend. While I don't believe that it is possible for that to happen in the US, the fact is, since the founding of the Fed in the 1913, the value (purchasing power) of the dollar has dropped over 95%, and since 2000, it has dropped over 25%. What I am saying is that $5000.00 in 1913 is equal to $100000.00 today.

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Amanda Kish

Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter.

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