17 Common Investing Mistakes Every Invest Needs to Avoid


Investing can be one of the most effective ways to build wealth and secure your financial future.

However, it’s a journey full of potential pitfalls that can derail even the most well-intentioned plans.

Whether you’re a novice investor or have been navigating the markets for years, understanding the common investing mistakes that many investors make is crucial.

This article will dive into the most common investing errors and provide you with the insights needed to avoid them.

By recognizing these missteps and learning how to sidestep them, you can enhance your investment strategy, minimize risk, and maximize your potential for long-term success.

Let’s look at 17 mistakes investors need to avoid.


Set realistic investment expectations to avoid emotional decisions.
Diversify investments to reduce risk and protect wealth.
Continuous education and sound advice can guide you towards long-term goals.

17 Common Investing Mistakes to Avoid

Not Doing Your Research

man making common investing mistakes
Image Credit: Shutterstock.

One common mistake all too many investors make is not doing their research.

It’s important to know the companies or assets you’re investing in.

This means you shouldn’t rely just on financial television programs or hot stock tips.

Due diligence is critical.

By researching, you can verify if a stock is as good as it seems.

Failing to do this can result in investing in poor performers, causing you to lose money.

Emotional Investing

Emotions like fear and greed can cloud judgment in all areas of life, including investing.

For instance, selling stocks in a panic during a market downturn or buying because of hype can lead to substantial losses.

You need to work to separate your emotions from investments.

A slow and steady approach is often better.

This is why so many recommend setting up an automatic investment plan.

You pick the amount you want to invest every month, along with the investment, and let it automatically buy more shares for you.

By not looking at the back and forth of the market, you are less likely to overreact.

Being Overconfident

Another mistake many investors make is having too much confidence, thinking they are smarter than the market.

Being overconfident can lead to risky investment choices.

You might believe you can consistently pick winning stocks or time the market.

This attitude often results in excessive trading, which can incur high fees and taxes, eating into your returns.

Overconfidence can also cause you to underestimate the risks, leading to a poorly diversified portfolio.

Remember, even professional investors struggle to outperform the market consistently.

Chasing Past Performance

Chasing past performance is a common mistake.

Just because a stock or fund did well last year doesn’t mean it will continue to do so.

Markets are unpredictable, and past success doesn’t guarantee future returns.

I even fell for this one. In the late ’90s, I invested a couple of grand into a tech mutual fund that was returning 70-80% a year.

The bubble burst a few months after I invested, and I lost 90% of my money.

This isn’t to say you should never invest in an individual stock that is performing well.

But you should research it to make sure it isn’t overvalued and can continue earning higher returns.

Ignoring Inflation

Ignoring inflation is one of the most common mistakes that can erode your investment returns over time.

Inflation reduces the purchasing power of your money, meaning you need higher returns to maintain your wealth’s real value.

For example, if your investments return 5% annually, but inflation is 3%, your real return is only 2%.

To combat this, consider investing in assets that historically outpace inflation, such as stocks or real estate.

Understanding inflation and its impact on your investments can help you make informed decisions, ensuring that your portfolio grows in real terms, not just on paper.

Lack of Diversification

Not diversifying can expose your investment portfolio to unnecessary risks.

Any poor performance can significantly impact your overall returns if you invest too heavily in a single stock or sector.

Owning a mix of stocks, bonds, and other assets can reduce this risk.

By spreading your investments, you can achieve a balance that mitigates losses when individual assets underperform.

Being Too Diversified

While spreading investments is critical, over-diversification can dilute returns.

Holding too many investments can create a complex portfolio to manage.

Also, many times the different exchange traded funds (ETFs) and mutual hold the same stocks.

So, if you invest in a large-cap growth fund, it might own shares of Apple and Microsoft.

If you decide to buy a total market fund, this will also own shares of these companies.

Focus on a manageable number of high-quality assets across various sectors.

Don’t make the mistake of thinking more is always better.

You can build a solid portfolio with a couple of index funds.

Trying to Time the Stock Market

Many investors believe they can time the market, buying low and selling high.

This strategy sounds appealing but is difficult to execute successfully.

The market can be unpredictable, and even experienced investors often struggle to make the right calls consistently.

Trying to time the market can lead to missing out on gains during recovery periods.

For example, if you sell during a downturn and the market rebounds quickly, you might miss the opportunity to recover losses.

Instead of timing the market, consider a buy-and-hold strategy, which involves holding investments over a long period.

Frequent trading to time the market can also incur higher transaction fees and taxes.

These costs can eat into your returns.

Patience and long-term planning typically provide more stable growth and can avoid the emotional stress linked to constant buying and selling.

Ignoring Fees and Expenses

Failing to account for fees and expenses can significantly reduce your investment returns.

Typical costs include management fees, transaction costs, and commissions.

When investing in mutual funds or ETFs, pay attention to expense ratios.

These funds charge a percentage of your investment to manage.

Most investors don’t realize they pay this fee as they are not billed for it.

Instead, it comes out of their return.

If the fund you own charges a 1% fee and earns 8%, you earn 7%.

Finally, don’t make the mistake of thinking investments with a higher fee mean a bigger return.

The opposite tends to be true: the lower the fee, the higher the return.

Neglecting Tax Consequences

Individual income tax return form
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Many investors overlook how taxes can affect their investment return.

For example, if you are unaware of the potential tax liabilities when selling investments, you could pay more in taxes than expected.

Certain accounts, like 401(k)s and Roth IRAs, offer tax advantages that can help reduce your taxable income.

Make sure to utilize tax-advantaged accounts to their full potential.

Missing out on these benefits is a common mistake.

It is important to know that mutual funds often distribute capital gains and dividends to shareholders.

Even if you haven’t sold shares, you could still face a tax liability from these distributions.

This is why many people invest in ETFs, which tend to be more tax-efficient.

Another strategy is tax-loss harvesting, which involves selling losing investments to offset gains.

Tax-loss harvesting can lower your taxable income, reduce overall tax liability, and improve your investment return.

Not Having a Plan

Not having a clear financial plan is one of the biggest strategic errors you can make.

Without a plan, you may make hasty decisions or chase the latest trends.

It’s essential to set specific financial goals in your plan.

For example, determine your target return rate, risk tolerance, and time horizon.

Outline your investment objectives, too.

A well-thought-out investment strategy should outline both your short-term and long-term goals.

This helps keep your investment strategy on track, making it easier to navigate through stock market volatility.

Measuring progress against a defined plan is also easier, allowing for more informed adjustments.

Holding onto Losers

Emotional attachment to investments can be detrimental.

Holding onto losing investments, hoping they will rebound, can hurt your portfolio.

Recognize when an asset no longer fits your original long-term investment strategy.

This does not mean you should sell at the first sign of trouble, but having a clear exit strategy is crucial.

Setting pre-determined sell points can help you make objective decisions.

For example, if an investment drops by a certain percentage, it might signal the need to reassess its place in your portfolio.

Falling for Fads

Chasing hot trends can be tempting but often leads to poor outcomes.

Investing based on the latest fads usually results in buying high and selling low.

Instead of getting caught up in trendy stocks or sectors, stick to your researched, long-term plan.

This means focusing on stability and time-tested strategies rather than the flavor of the month.

At the same time, recognize when a fad isn’t a short-term phenomenon but a revolution that leads to something new.

Underestimating Risk

Underestimating market risk is a common mistake in investing.

Risk can come from various sources, including market volatility and economic events.

Failure to identify and plan for these risks can hurt your portfolio.

Your risk tolerance, how much risk you can handle, plays a critical role.

Knowing your comfort level helps you set realistic expectations.

If you take too much risk, you might face losses during wild swings in the financial markets.

Too little risk and your returns could fall short of your financial goals.

Use asset allocation to spread risk across different types of investments.

This strategy can lessen the blow if one asset performs poorly.

Failing to Rebalance

Regularly rebalancing your investment portfolio is vital for maintaining your investment strategy and helping you achieve greater long-term growth.

Over time, market changes can cause your initial allocations to shift.

This may result in your portfolio becoming riskier than you intended.

For instance, if you start with a mix of 60% stocks and 40% bonds, a significant rise in stock prices can increase the stock portion to 70%.

This exposes you to higher risk.

The opposite is also true.

If your bond allocation becomes too large, you might not earn the returns you need.

By rebalancing, you sell some stocks to buy bonds, bringing you back to your desired allocation.

Not Thinking Small Amounts Will Matter

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Small amounts can significantly impact your investments over time.

Many investors overlook the power of regular, small contributions.

Using dollar-cost averaging, where you invest a fixed amount regularly, allows you to buy more shares when prices are low and fewer when they are high.

Even investing just $50 a month can grow considerably with compound interest.

Most mutual funds allow for small automatic investments, and many brokers now offer fractional investing in stocks, allowing you to invest $5 or $10 at a time.

Waiting Too Long to Start Investing

Many people delay investing because they are scared or believe they must have a lot of money.

In reality, small amounts can grow significantly through compound interest if invested early.

Putting off investing can mean missing out on potential growth.

One simple way to start is by opening a 401(k) plan if your employer offers one.

These plans often come with company matches, which are free money.

Even modest contributions can add up over time.

I remember starting with $20 from each paycheck.

A little more than a year later, I have over $1,000.

Don’t wait for the “right” time to invest.

Markets fluctuate, and trying to time them can result in missed opportunities.

Begin early, remain consistent, and stay informed to maximize your investment’s potential.

Not Seeking Advice from Experts

One of the biggest investing mistakes novice investors make is not seeking expert advice.

Financial advisors and wealth managers provide insights based on years of experience.

They help you create a diversified investment portfolio, align your investments with long-term goals, and avoid emotional decisions like panic selling during market downturns.

Consulting with a professional can also help you understand complex market trends and investment vehicles.

They often have access to research and resources that individuals do not.

This expert guidance can prevent costly errors, such as overestimating returns or concentrating your investments in one asset class.

While they do cost money, they are worth it if you find the right one.

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