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The Most Common Investing Mistakes Thumbnail

The Most Common Investing Mistakes

Beau Browning Behavioral Finance Financial Planning Investment

| January 16, 2025

When it comes to investing, it is always hard to avoid behavioral pitfalls.  Educating ourselves and keeping our emotions at bay can lead to the most consistent outcomes.  Please read along for our take on the most common investing mistakes.

 1. Expecting Too Much

Having reasonable return expectations helps investors keep a long-term view without reacting emotionally.  Stocks have historically returned around 9% on average annually and bonds closer to 5%, so keeping this perspective is helpful for future planning. 

2. No Investment Goals or Focusing on the Short Term

Often investors focus on short-term returns or the latest investment craze instead of their long-term investment goals.  It’s easy to do this, but it can make investors second-guess their original strategy and make careless decisions.  Financial independence is achieved over time rather than overnight.

 3. Not Diversifying

Diversifying prevents a single stock from drastically impacting the value of your portfolio.  Sometimes this can frustrate us as investors as it may mute returns a bit, but it also helps avoid putting all eggs into one basket and having that basket turn out to be the worst one.

4. Investing With Emotions: Keeping Unfavorable Investor Behavior in Check

Although it can be challenging, remember to stay rational during market fluctuations.  Buying high, selling low or trading too much during market swings often hinders overall performance. Studies have shown that the most active traders underperformed the U.S. stock market by 6.5% on average annually [Source: The Journal of Finance].  Also reacting to negative news media in the short-term can trigger fear but remember to focus on a longer horizon. 

 5. Not Reviewing Investments Regularly

Review your portfolio annually to make sure your investments are keeping you on track to achieve your goals.  Diverse portfolios might need rebalancing from time to time as a general good practice.

 6. Misunderstanding Risk

Too much risk can take you out of your comfort zone, but too little risk may result in lower returns that do not reach your financial goals. Recognize the right balance for your personal situation.

 7. Accounting for Inflation When Looking at Your Performance

Review your returns with your advisor and account for inflation.  Inflation can erode real purchasing power, so be sure to consider the historical 3.5% rate of inflation when looking at real returns.

 8. Trying to Time the Market

Market timing is extremely hard. Staying in the market can generate much higher returns versus trying to time the market perfectly.

 9. Working With the Wrong Advisor

Taking the time to find the right advisor is worth it. Vet your advisor carefully to ensure your goals are aligned.

 10. Not Controlling What You Can by Making Consistent Contributions

While no one can predict the market, investors can control contributions over time, which can have powerful outcomes.  More time in the market means more meaningful compounding of interest. 

If you have questions about investing, coreVISION is here to help.