4. NEGLECTING THE EFFECTS OF PORTFOLIO MANAGEMENT EXPENSES. Over time, compounding effect of portfolio management expenses can be quite large, thus depriving you of better returns. For this reason, you should focus on minimizing portfolio management expenses, specifically trading costs, advisory fees and taxes.

5. MAKING INACCURATE RETURN FORECASTS. Forecasting is single most difficult task with designing portfolios. Although not a perfect solution, using historical returns rather than making forecasts is generally considered more appropriate for individual investors.

6. OVERESTIMATING THE LEVEL OF PORTFOLIO DIVERSIFICATION. Diversification is one of ten cornerstone principles of asset allocation and is key to reducing risk, namely company-specific risk. To properly diversify, you should hold sufficient quantities of not-too-similar securities with comparable risk and return trade-off profiles. Consider broad-based index funds for a quick and easy solution.

7. MISJUDGING THE IMPACT TAXES HAVE ON NET RETURN. Taxes can have a severe negative impact on your net return. As a result, balance tax and investment considerations, but remember that suitability and appropriateness of an investment take precedence over tax consequences. Never hold an inappropriate investment.

8. CONFUSING DIVERSIFICATION WITH ASSET ALLOCATION. Many investors mistakenly believe that a properly diversified portfolio is a properly allocated portfolio. This is leading misconception of asset allocation. Properly allocate your portfolio among different asset classes first and then diversify investments within each asset class.

By avoiding these biggest mistakes you will design an optimal portfolio that provides best opportunity to achieve and protect your financial independence, control and security.

The question of commission is last issue to address when evaluating full-service broker. What is a fair rate? This is a very relative question. Although you should obviously price a few different brokers, to see what others in field are charging, this question boils down to what kinds of assistance you think you will need to trade effectively. Two questions to ask yourself when negotiating your round turn rate are: A: What is a fair price for expertise and assistance this broker is offering? B: Is cost of using this broker an expense that you can cover, and still be profitable, on a per trade basis?

Hopefully this article will help some of you to evaluate brokers with some specific criteria in mind. As a licensed futures broker myself, I find that an informed customer is usually easiest to deal with, and more confident in his or her trading. The goal is to find an ally in your trading, somebody who is invested in you attaining your goals, and this is a good place to start. I always appreciate feedback from trading community, so feel free to send me any of your experiences or comments.

Good Trading!

Scott Ervin Futures Broker servin@webvestor.com