The 20 Most Common Investment Mistakes, in One Chart


The 20 Most Common Investment Mistakes

No one is immune to errors, including the best investors in the world.

Fortunately, investment mistakes can provide valuable lessons over time, providing investors an opportunity to gain insights on investing—and build more resilient portfolios.

This graphic shows the top 20 mistakes to watch out for, according to the CFA Institute.

20 Investment Mistakes to Avoid

From emotionally driven investment decisions to paying too much on fees, here are some mistakes that investors commonly make:

Top 20 Mistakes Description
1. Expecting Too Much Having reasonable return expectations helps investors keep a long-term view without reacting emotionally.
2. No Investment Goals Often investors focus on short-term returns or the latest investment craze instead of their long-term investment goals.
3. Not Diversifying Diversifying prevents a single stock from drastically impacting the value of your portfolio.
4. Focusing on the Short Term It’s easy to focus on the short term, but this can make investors second-guess their original strategy and make careless decisions.
5. Buying High and Selling Low Investor behavior during market swings often hinders overall performance.
6. Trading Too Much One study shows that the most active traders underperformed the U.S. stock market by 6.5% on average annually.
Source: The Journal of Finance
7. Paying Too Much in Fees Fees can meaningfully impact your overall investment performance, especially over the long run.
8. Focusing Too Much on Taxes While tax-loss harvesting can boost returns, making a decision solely based on its tax consequences may not always be merited.
9. Not Reviewing Investments Regularly Review your portfolio quarterly or annually to make sure you’re staying on track or if your portfolio is in need of rebalancing.
10. 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.
11. Not Knowing Your Performance Often, investors don’t actually know the performance of their investments. Review your returns to track if you are meeting your investment goals factoring in fees and inflation.
12. Reacting to the Media Negative news in the short-term can trigger fear, but remember to focus on the long run.
13. Forgetting About Inflation Historically, inflation has averaged 4% annually.

Value of $100 at 4% Annual Inflation
After 1 Year: $96
After 20 Years: $44

14. 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.
15. Not Doing Due Diligence Check the credentials of your advisor through sites like BrokerCheck, which shows their employment history and complaints.
16. 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.
17. Investing With Emotions Although it can be challenging, remember to stay rational during market fluctuations.
18. Chasing Yield High-yielding investments often carry the highest risk. Carefully assess your risk profile before investing in these types of assets.
19. Neglecting to Start Consider two people investing $200 monthly assuming a 7% annual rate of return until the age of 65. If one person started at age 25, their end portfolio would be $520K, but if the other started at 35 it would total about $245K.
20. Not Controlling What You Can While no one can predict the market, investors can control small contributions over time, which can have powerful outcomes.

For instance, not properly diversifying can expose you to higher risk. Holding one concentrated position can drastically impact the value of your portfolio when prices fluctuate.

In fact, one study shows that the optimal diversification for a large-cap portfolio is holding 15 stocks. In this way, it helps capture the highest possible return relative to risk. When it came to a small-cap portfolio, the number of stocks rose to 26 for optimal risk reduction.

It’s worth noting that one size does not fit all, and seeking financial advice can help you find the right balance based on your financial goals.

Another common mistake is trading too much. Since each trade can rake up fees, this can impact your overall portfolio performance. A separate study showed that the most active traders saw the worst returns, underperforming the U.S. stock market by 6.5% on average annually.

Finally, it’s important to carefully monitor your investments regularly as market conditions change, factoring in fees and inflation. This will let you know if your investments are on track, or if you need to adjust based on changing personal circumstances or other factors.

Controlling What You Can

To help avoid these mistakes, investors can remember to stay rational and focus on their long-term goals. Building a solid portfolio often involves assessing the following factors:

  • Financial goals
  • Current income
  • Spending habits
  • Market environment
  • Expected returns

With these factors in mind, investors can avoid focusing on short-term market swings, and control what they can. Making small investments over the long run can have powerful effects, with the potential to accumulate significant wealth simply by investing consistently over time.

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