7 of the Most Common Investing Mistakes to Avoid

7 of the Most Common Investing Mistakes to Avoid

Although it’s not part of the classic curriculum, investing is an important part of your adult education. And, it’s a very necessary one if you ever plan to save enough for retirement. But, portfolio gains are rarely linear. Even the most conservative investors are subject to losses during market fluctuations. However, others suffer huge losses or miss out on opportunities due to a foolish mistake. If you are new to investing, here are 7 common investing mistakes to avoid.


A Late Start to Investing

While I have always been responsible with money and managed to stay out of debt, I was never taught how to invest. And since I was struggling just to pay my bills, saving for retirement never seemed like a high priority.


So, like all procrastinators, I put it off. When I got my first job, I was more focused on paying down my debt than maximizing employer matching for retirement accounts. I told myself that I would have time to figure it out later.


But as I entered my 30s, I realized that I could no longer avoid the issue. If I wanted to retire, I had to take action. I needed an education and found an excellent resource in the Morningstar classroom. I started by reading everything I could: articles, theory, and market reports, and even took a free online course to make up for the lost time.


Five years later, I’m in a much better financial position and have found a financial planner that understands my long-term goals. Through my own education and his expert advice, I have learned about what investing mistakes to avoid to maximize my ROI.


7 of the Most Common Investing Mistakes to Avoid

Although this list is not exhaustive, here are 7 of the most common investing mistakes to avoid, especially when you are first starting out.


1. Jumping on the Bandwagon

Whenever I get excited about a new company, my financial advisor reminds me to perform due diligence. Like fashion and pop culture, there are investing trends. Some stocks become popular simply because they are the cool, new investment to own. Others see an uptick because they become meme stocks or hot topics of discussion on subreddits. But investing in stocks because they are popular is not a sustainable strategy.


When people fall victim to the mob mentality, it’s easy to jump on hot stocks and end up in a buying frenzy. If everyone else is buying, then the stock must hold some value, right?


This logic is very wrong and can result in huge losses once the fad fizzles out. If you purchase stock once it gets popular, you are probably buying it as the price peaks. So, you will lose money by investing at this stage. Instead of trying to stock pick, look to index funds that provide steadier returns and greater diversification.


2. Attempting to Time the Market

No one has a crystal ball to predict how the market will react at any given moment. While we can look for trends and patterns, no one will ever be 100% accurate all the time.


Trying to time the market can be a volatile game. And when things don’t go to plan, you could suffer huge losses. Even worse, some investors become more aggressive when markets are down and make a bad situation even worse. It’s a huge gamble that is rarely worth the payout. Instead, take a longer view towards investing that produces consistent yields by riding out the market highs and lows.


3. Investing Money You Can’t Afford to Lose

Investing is an essential part of financial planning. Therefore, it’s something that you need to make room for in your budget.


However, you should never invest money you cannot afford to lose. So if you are going to need the money soon, there are better options than putting it in the stock market. A high-yield savings account, bonds, or CDs offer better rates than other types of accounts. And, they will allow you access to the funds when the time comes.


4. Panic Selling

If you focus too much on the day-to-day fluctuations of the stock market, you could drive yourself insane, especially now that all markets have officially entered bear territory. However, every investor must realize that your portfolio will experience its fair share of setbacks, sometimes due to economic factors beyond anyone’s control. But, it’s no less terrifying to watch your savings take a nosedive.


Your first inclination may be to save what you can and abandon ship as things head south. But, any financial advisor worth their salt will tell you to trust your strategy and ride it out. Panic selling locks in your losses and prevents any possibility of rebounding. It’s better to keep your cool and weather the storm to recapture your losses when the stock market recovers.


5. Never Reviewing Your Portfolio Performance

Although many people like to put things on autopilot, that’s not a wise approach to your investing strategy. Conditions are constantly changing, so you need to regularly check your portfolio’s performance and adjust your strategy and asset allocation based on the market.


Furthermore, you will have different investment strategies depending on where you are in life. What worked in your 30s and 40s may be too aggressive as you near retirement. So, it’s important to assess your changing goals and switch strategies when necessary. If you aren’t comfortable making these decisions, you can use a free robo-investor or hire a financial advisor to advise you and manage your assets.


6. Not Setting Investment Goals

It’s never a good idea to do something simply for the sake of doing it. This is even more important when you are investing. Rather than throwing money into assets that you don’t understand, take the time to set clear goals.


Your strategy depends on what your financial goals are and what you hope to achieve through investing. Are you looking for short-term gains to fund a home repair, a large purchase, or a trip? Or, are you focused on more long-term goals like purchasing a home or retirement? When you know what you want to achieve, steer your investments toward assets that will help get you there faster.


7. Choosing Not to Invest at All

While all of these can set your savings goal back, the worst mistake you can make is not investing at all. I know how intimidating it can be for first-timers. But, that’s why you hire a financial advisor to help you.


Keeping your money tied up in low-yield checking and savings accounts reduces your purchasing power, especially with the rising rate of inflation. You are only hurting yourself by putting it off. The sooner you get started, the more time you have for compounding interest to help you save for retirement.


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