Related: ETF vs. Mutual Fund: The Same, But (Very) Different

When buying mutual funds in a non retirement account, you can avoid embedded capital gains by buying tax managed funds, index funds or ETFs.

At the end of each year you can also harvest losses by realizing a capital loss for tax reasons by exchanging one mutual fund for another similar fund.

(Note: this mistake is only relevant for mutual funds that are purchased in a non-retirement account. Inside of retirement accounts like IRAs, 401(k)s, 403(b)s, and other company retirement plans, regardless of the transactions that occur within or between the investments in the plan, you pay no taxes until you withdraw funds.)

Mistake #3: Buying Many Similar Fund Strategies

Many people own eight to ten different mutual funds and think they are diversified, but when you look inside the mutual funds, all the funds own the same type of stock, or the same type of bond. This would be like sitting down to a well balanced meal of pork, beef and chicken.

Click here to read the full story on