Most new investors sabotage their own success before they even get started—not through bad luck, but through predictable mistakes that you can easily avoid. Whether it’s jumping into hot stock tips without research, putting off investing because retirement seems too far away, or forgetting that taxes and fees can silently erode your returns, these common pitfalls can cost you thousands of dollars and years of potential growth.
Below, we’ll help you sidestep these traps.
Key Takeaways
- Make sure you identify your goals, timelines, and risk tolerance before investing so you avoid emotional decisions that hurt your returns.
- A key mistake many make is not diversifying by putting their money into just a few stocks or other assets.
- Newer investors often overlook expenses and taxes that’ll become due later, which can cut their returns.
1. Not Actually Investing
If you invest through a retirement plan at your workplace, your contributions are automatically invested. However, many people hesitate to get started and put it off, leaving their money in savings accounts that yield little in interest.
“You need to pick the investments,” Dinon Hughes, a certified financial planner (CFP) and partner at Nvest Financial, told Investopedia. Otherwise, your money probably will sit in cash, earning little. “I’ve seen this more times than I’d care to share,” he said.
Especially when you’re young, retirement is far off, and you’re juggling other expenses, it can be easy to put off saving and investing. However, “a small amount makes a big difference long term,” said Jack Heintzelman, director of wealth management at Boston Wealth Strategies.
Tip
You can’t sidestep your emotions entirely, so many investors create systems that help them keep their investing decisions more rational when the markets get volatile. For example, you can set up automatic investments so you keep buying during market downturns. Others give themselves a waiting period—24 to 48 hours, for example—before acting on any stock tip or investment idea to provide them with time for research and to avoid the emotion of the moment.
2. Not Having an Investment Plan
Without an investment plan that identifies your goals, it’s easy to overreact, invest reactively, or underestimate risk, said Nathan Sebesta, CFP and owner of Access Wealth Strategies. For example, investors acting without a plan may jump into investments that carry more risk than they can reasonably manage.
Conversely, investors who develop a plan that considers their objectives, timeline, risk tolerance, and their contribution amounts are better positioned to achieve many of their goals, said Mike Casey, CFP and president of American Executive Advisors.
3. Letting Emotions Drive Your Investment Decisions
When stock prices drop and news headlines scream about market crashes, it’s natural to feel anxious and want to sell everything to cut your losses. “It can feel…
Read More: Avoid These 6 Common Beginner Investing Mistakes That Could Cost You Big
