THE sub-prime mortgage crisis has highlighted how naive even so-called experts can be.

Sub-prime lenders believed . . . or pretended to believe . . . that pricey loans would be repaid by people with dodgy credit histories, the so-called Ninjas (No Income, No Job or Assets).

Borrowers weren't so smart either, and up to 1.8m of them are set to lose their homes in the US this year alone because of the crisis.

Even some of the world's biggest banks got caught out by buying "securitised" versions of these loans. If even these guys got stung, what hope is there for the rest of us?

The crisis shows how inexperienced investors or borrowers should tread carefully to avoid financial pitfalls. Here are a few dos and don'ts to help you through the minefield.

Don't swallow the hype

Just because you see a product advertised everywhere, that doesn't mean it's the one you should go for. The best investment deals are not trumpeted as much because they don't need to be; you have to winkle them out. The same goes for loans.

If a lender targets people who are financially troubled and then offers to solve all their financial problems, buy them a new car and send them off on a holiday, something doesn't add up. They are usually offering loans at higher rates of interest or over much longer periods, which is only going to make long-term debt problems worse.

That's exactly why the sub-prime crisis has erupted in the States and then across the world.

Do invest in what you know Veteran Irish investor Harry Crosbie, who revitalised Dublin's docklands, once said he wouldn't buy property down the road in Donnybrook because he "didn't know the area".

Yet other Irish investors are being encouraged to splash out the readies as far afield as Mongolia (I'm not joking).

Others are already getting stung after buying in Eastern Europe.

Just because a property sounds cheap by Irish standards doesn't mean it's cheap by local ones.

Often developers add on what is known as a 'Paddy tax', racking up their prices by up to 20% because an investor is from a part of the world that's known for parting with ungodly sums for property.

Other pitfalls that are often not taken into account are local tax and rental laws.

You're probably better off going into a pooled investment fund where you spread the risk and let the experts do the research for you.

Do beware of gimmicks

The late, great economist JK Galbraith warned us to beware of innovation in financial services; it often means the bank has cooked up a better deal for itself!

The more complicated a product is, the less likely you'll understand it and the more likely that you will be ripped off.

Banks and insurance companies constantly innovate so as to create demand by appearing to offer something new and exciting. Yet the relationship between you and your bank is that money flows from you to it or from it to you. The more money that goes from you to it, the better for the bank. So it's hardly likely to dream up ways for to save you money at its expense.

New products are often introduced because people saw through the old ones. And so we had endowment mortgages for many years . . . until we realised that these were commission-generating instruments largely unsuited to the majority of people who bought them.

Then tracker bonds created a booming market for a few years . . . until the high charges and low returns came home to roost.

Don't seek a 'quick buck'

Find a business you believe in and stick to it, advises legendary investor Warren Buffett. Shareholders ought to buy a stock on its intrinsic merits as if they were going to hold it indefinitely.

"If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes, " he says.

Buffett cites Coke and Gillette as examples of businesses that won't undergo fundamental changes for decades and these are the type he wants to buy . . . and hold.

"Inactivity strikes us as intelligent behaviour, " he notes. Buffet also bursts the "fast buck" balloon by reckoning that, realistically, investors should expect a return of no more than 15% a year.

Do watch for hidden charges

Financial products are designed to make money for you and the provider. That's not a problem. However, if you can't understand how or where the provider is making its money, don't buy it.

Tracker bonds have all sorts of charges built in that are impossible to extrapolate. Many are charging up to 8%. Other investments may have 'exit' fees, bid/offer spreads, etc, all of which eat into your potential returns.

If you know what you want, and don't need investment advice, you should pay no entry or exit fees at all and part with annual management charges of no more than 1%-1.5% unless the fund you go for is highly specialised or managed.

Rabobank and Quinn Direct both offer a wide range of such funds online.

Do take account of inflation

A lot of deals look great because they don't mention inflation. This includes most deposit accounts. Even the best deposit accounts pay just 5%. Inflation is 4.8%, giving you a net return of 0.2% even with the very best deals. However, most deposits pay much less, so you are losing money.

Inflation-blindness has caught out many an investor too. Financial products often target investors who don't really understand what they're getting into and want to be assured that they can invest in equity markets without any risk whatsoever to their capital.

Investments such as tracker bonds often guarantee that your money is 100% safe. But to avail of this you must lock it away for six years. Many tracker bond investors have got their money back after six years . . . and only then realised that this made them a substantial loss in real terms.

Do trust your instincts

If it sounds too good to be true, it probably is. You get a letter telling you you've won a lottery you've never heard of, or someone from a company with a ridiculously high-falutin' name like Morgan Vanderbilt rings to sell a once-in-a-lifetime investment opportunity you simply have to buy there and then.

This sort of cold-calling without consent can be illegal. Even if it isn't, the deal is hardly going to be any good or it wouldn't have to be sold so aggressively. Spectacularly good investment opportunities have savvy investors beating down their doors. And as for winning lotteries you've never heard of let alone entered, forget it. To collect, you'll probably have to send your bank details and we all know what that meansf Don't go by past performance Respectable investment products have used the same tactics and lured investors by suggesting outlandish returns. But there's a big difference between guaranteed and potential returns. Projections for the latter are often based on past returns and one of the biggest mistakes investors make is assuming that what happened in the past is going to be endlessly repeated in future.

But just because something has risen enormously in value does not mean it will continue to do so . . . in fact, the reverse is more likely. Is now a good time to buy Irish property? I don't think so. But if you went on past performance, it would look like a surefire winner.