Don't Fall for These 5 Common Investing Mistakes

Emily Carter 27 December, 2023

8 Minutes

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Investing is one of the most powerful tools for building long-term wealth—but only if you avoid the common pitfalls that can sabotage your progress. Whether you’re just starting out or you’ve been in the market for years, even small mistakes can lead to big setbacks over time. The good news? Most investing missteps are entirely avoidable once you know what to look out for.

Here are five of the most common investing mistakes people make—and how you can steer clear of them.

1. Chasing Performance

It’s tempting to jump into whatever stock, fund, or sector has been doing well lately. But chasing recent winners is like driving while only looking in the rearview mirror. Past performance doesn’t guarantee future returns.

By the time the media is hyping a hot stock or fund, the biggest gains may already be gone. Worse, many investors buy high and sell low when the trend inevitably reverses. Instead, focus on long-term fundamentals, and build a diversified portfolio that matches your goals and risk tolerance.

2. Timing the Market

“Buy low, sell high” sounds like great advice—until you try to do it. The truth is, even professional investors struggle to time the market consistently. Trying to guess the perfect moment to buy or sell often leads to missed opportunities and emotional decision-making.

Rather than trying to outsmart the market, invest consistently through dollar-cost averaging. Making regular contributions, regardless of market conditions, helps smooth out volatility and keeps you disciplined through market ups and downs.

3. Lack of Diversification

Putting all your money into a single stock—or even a single sector—can be a recipe for disaster. If that investment goes south, your entire portfolio takes a hit.

Diversification spreads your risk across a variety of assets, including domestic and international stocks, bonds, and alternative investments. Index funds and ETFs make diversification easy, allowing you to own hundreds or even thousands of securities with just a few investments.

4. Ignoring Fees and Expenses

It’s easy to overlook investment fees, but they can eat away at your returns more than you realize—especially over the long term. Actively managed funds often carry high expense ratios, and frequent trading can rack up transaction costs and taxes.

Instead, choose low-cost index funds or ETFs whenever possible. Always check the expense ratio before investing, and avoid unnecessary trading. Small differences in fees—say, 1.0% versus 0.1%—can cost you tens of thousands of dollars over a few decades.

5. Letting Emotions Take Over

Fear and greed are powerful emotions, and they often lead to poor investment decisions. During market downturns, it’s natural to want to sell and “cut your losses.” When markets are booming, it’s tempting to pour money in and take on more risk.

The best investors stay calm and stick to their strategy, even when the market gets rocky. Create a plan based on your goals, risk tolerance, and time horizon—and trust it. If you need help staying disciplined, consider working with a fiduciary financial advisor who can keep you focused.

Bonus Tip: Know Your Goals

One underlying cause of many investing mistakes is a lack of clarity around your financial goals. Are you investing for retirement? A home down payment? Your child’s education? Your timeline and risk tolerance should drive your investment choices.

When you know what you’re working toward, it’s easier to choose appropriate investments, stay the course, and avoid reacting emotionally to short-term market noise.

Final Thoughts

Investing doesn’t have to be complicated—but it does require discipline, patience, and a solid plan. By avoiding these five common mistakes, you’ll be ahead of the curve and better positioned to grow your wealth over time.

Stay diversified, ignore the hype, focus on long-term goals, and keep your emotions in check. That’s the real key to smart investing—and it’s something anyone can do.

Written by Emily Carter

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