What To Look Out For When Considering Tax Free Investments

By: Gen Wright
If you are considering adding tax free investments into your existing portfolio, here are some common mistakes that you should avoid.

1) Don't chase numbers - Often, investment of insurance companies will try to dazzle you with attractive yields. If someone comes to you and say that they have tax free investment products that offer an unusually high yield, don't just take their word for it. Analyze the numbers for yourself and understand what they mean. It certainly helps to be discerning. If it sounds too good to be true, it probably is.

2) Don't chase new financial products - Investment and insurance companies are forever issuing and announcing new products. The recent trend - a plethora of new tax free products. They do this for many reasons but one of the main reasons is to keep up with the evolving needs of the marketplace. If you find some of these new products to be a good fit for your existing investment port folio, take some time to examine them. Otherwise, just walk the other way, or you may find yourself burdened with a large number of financial products that you not really need.

3) Always keep yourself updated with the latest investment deals - Keeping abreast of recent changes in the marketplace prevents you from investing in an outdated financial product. For example, if you are a high-net-worth investor (HNWI), you may qualify for a Private Placement Life Insurance policy. This new contract allows you to invest in a variety of tax free investment instruments, and gives you additional protection by wrapping your contract with an insurance element.

4) Managing your investment risks - You can do this by investing in a wide variety of bonds, equities and other tax free investment funds such as hedge funds. Keeping a close watch on your investment portfolio is a must, so that investment decisions can come quickly in respond to constant and fluid market changes.

5) Take note of any changes in the investment funds - For instance, the top management for a particular fund may have changed recently. This may mean a change in investment philosophy. If the new philosophy is not aligned to your own investment philosophy, you may want to consider switching funds. Your accountant or investment advisor may also help to keep track of other changes such as changes to fund management fees.

6) Never judge a book by its cover - Some investors think that they know everything about a fund just by looking at its name. But the fact is, the name of the fund is not always an accurate indication of the risks that the fund is undertaking. Always take the time to scrutinize prospectuses and other documentation. Even when the name claims that it's a tax free investment fund, look into the instruments that the fund will be investing in to assess the level of risk. When in doubt, consult a trusted professional investment advisor.

7) Investing in tax free funds without a plan - There is no need to rush into any investment. Hasty decisions often lead to undesirable results. So take some time to sit down and discuss various tax free investment options with a financial advisor. Draw out a plan, chart a course, and head towards your desired direction to help achieve your own financial goals.

At the end of the day, it's all about managing risks and maximizing returns in order to achieve the goals that you want as soon as possible. In the complex world of investments, there are many pitfalls. But these pitfalls can, and should be avoided. Don't hesitate to get professional help. After all, professionals look after millions of dollars of investments, and they are also more updated on the latest trends. This means they will be in a much better position to offer you sound investment advice.

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