8 Common Investing Mistakes to Avoid

By on November 6, 2018

Investing sounds simple: Buy low, sell high. But that’s easier said than done, otherwise we would all be millionaires. Every investor will make mistakes, now and then,but the trick is to learn from our mistakes — and then try to avoid them in the future.

Avoid These 8 Common Investing Mistakes

Mistake 1. Not Having an Investment Plan

Every investor needs to have goals and a financial plan or investment strategy that will guide future decisions. A good strategy will help you adhere to sound, profitable choices, taking into account the value of your assets and the amount of time you have to invest, the level of risk you are comfortable with bearing and how you intend to handle poor market conditions. Having clear goals and a sound plan are the first line of defense in avoiding costly investment mistakes.

An Investment Plan Should Address the Following:

  • Investment Goals – Growing Your Retirement Nest Egg? Looking to Generate Extra Income? Saving for a child’s college education? Setting out intended uses and aims will help you make focused decisions.
  • How Much To Invest – As long as you don’t need the money to live, you should be taking our money work for you. How much money will you deposit into your investment account (lump sums or regular deposits)?
  • Asset Allocation and Portfolio Diversification – Determine how much you intend to vest in equities, high-yield bonds or large-, mid- or small-cap stocks, and across which industries.
  • Benchmarks for Success and Re-balancing – Make time to actively review and reassess the state of your portfolio

Mistake  2. Not Having the Patience to Let Your Investments Mature

When you set your investment goals, you will want to consider how long you need to invest in order to reach your goals. Saving for retirement 20 years in the future or your child’s college education 5 years from now will have an impact on the allocation of your investment and the risks you are willing to assume to achieve your goals.

Whatever your investment timeline, investors often fail to exercise patience with investing. It is not unusual for an investment to take several years to become a top performer. Assuming you have chosen a quality investment, be prepared to hold it through a complete cycle to maximize its return.

Mistake 3. Not Having a Diversified Portfolio

All too often investors suffer huge losses because they put all their eggs in one basket. If you are heavily invested in one company, one industry or one particular asset class (i.e. stocks, bonds, cash, real estate or commodities) and lack other safer investments, your portfolio could lose significant value when that particular asset experiences a sudden loss – say a market downturn or company goes bankrupt. Diversifying between asset classes, industries and companies will help you manage risk and reach your financial goals.

Mistake 4. Not Accurately Assessing Your Risk Tolerance

All too often, investors think they know how much uncertainty they can handle until their stock takes a huge hit and they are itching to pull out before the stock rebounds, resulting in little to no return on investment. There is always risk involved in investing, so it is important to know how much price fluctuation you are willing to patiently bear to achieve your financial goals.

Typically, if you don’t intend to access the earning for many years, then you can afford to try some riskier, high-yield investments. And if you need to access the money in a few years, investors should consider more conservative positions.

Mistake 5. Making Investment Decisions Based on Emotions, Media Recommendations or “Insider Tips”

Just because a friend, coworker or host of a TV investment show recommends a particular investment, does not make it a smart decision. Following the herd of late-market investors chasing the performance of an asset in the hopes it will continue to outperform may have you investing near the top. And emotional decisions based on fear or overconfidence are often shortsighted and wrought with bias.

Human behavior has a tendency to be inconsistent so good investment decisions need to contain elements of mathematics as well as human reasoning. Don’t rely on your instinct or panic, but if you have a prediction, be patience, check it against important statistics and figures and reassess your comfortable level of risk tolerance. The same goes for investment tips offered up in conversation by colleges or media outlets.

And avoid participating in investment fads – buying a stock because it’s making headlines or a hot pick. This often causes investors to buy an asset late in the upswing or even at its peak price once the smart investors have cashed out. Those late to the market will find these high prices come at a cost when the momentum of popularity reverses trend and stabilizes. Don’t make emotion filled investing decisions based on market fears or what’s popular.

Mistake 6. Failing to Harvest Profits and Rebalance Portfolio

It can be tempting to ride the streak of an outperforming investment in one asset class, but before you know it you portfolio will become unbalanced. In order to alleviate the risk associated with poorly diversified investments, it is time to harvest from profits and rebalance your portfolio to its target asset allocation.

No streak continues for ever and while it may be difficult to convince you to sell a top performing stock, at some point you need to remove your investment gains from one good asset to reinvest somewhere else, bringing your portfolio back in line with your allocation goals. And for those with a short-term investment strategy for extra cash, why wouldn’t you want to cash out some of that profits while gains are at their peak?

Mistake 7. Not Knowing When To Let Go of a Losing Investment

As the saying goes ”know when to hold’em and know when to fold’em”. Earlier we discussed having patience with good investments and giving them time to rebound and grow over the long-term. On the flip side, investors should avoid becoming attached to their investments (or their pride in picking good investment) such that they hold onto a losing stock until there is no hope of it coming back. In reality, sometimes it’s best to cut your losses and move on.

Mistake 8. Not Doing Your Homework or Seeking Help From a Professional

All too often novice investors rely on the word of other active or experienced investors, friends, family or colleagues. It’s time for investors to take responsibility for themselves. You don’t need to become an expert, but you do need an education in investment basics and some expert advice from a financial professional familiar with your individual situation to start making smart investments.

Recognize and avoid these eight common investing mistakes for the best advantage at reaching your investment goals and building a secure financial safety net for the future.

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About Terri A. Kamoto

Senior writer for FSN - Terri is a former financial analyst dedicated to making personal finances, budgeting, investment and insurance advice accessible, up to date and easy to understand. It is hard to find professional advice written in a language someone without a financial background can understand. Terri helps companies synthesize industry lingo and expertise into clear and informative content which builds smarter, financially successful individuals. You can find Terri on !

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