Investing Mistakes to Avoid. 3 big investing mistakes to avoid, if you don’t it will cost you a bundle.

I’m extremely lucky to have a smart and successful group of clients, many of whom came to me after falling victim to the 3 simplest of investing mistakes. Whether rich or poor market folly does not discriminate. Win by not losing is often the least stressful path to financial independence.   Here are my three top investing mistakes to avoid

By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™

“The Stock Market has a very efficient way of transferring wealth from impatient to the patient” As the sage of Omaha Warren Buffett Once said.

Many novice investors often think being a successful investor is just about picking the “best” investments and maybe even timing the market perfectly.  Realistically investing is about making a smart decision and avoiding making the big mistakes that can drag down your long-term investment returns.

Basic Personal Finance Advice:

Live within your means, pay yourself first and put money away monthly, use an appropriate well-balanced portfolio, and rebalance annually, otherwise leave it alone and watch the account values grow.

I may have lost you in the last sentence.  But that doesn’t stop many people from tinkering with their investments way more than they need to.   You may also find emotions leading you to sell when you should be buying, and buying when you should be selling.  Common sense doesn’t always win out when it comes to money, especially when the times are great, and even more so when the times are terrible.

The more difficult and complicated you try to make your investments and financial plan the more trouble you risk running into.  Working towards your financial goals isn’t easy, but it doesn’t have to be difficult either.

Here are the three big investing mistakes to avoid that can threaten to throw people off their road map to financial independence.

Investing mistakes to avoid #1

Trying to Time the Stock Market:

People, in theory, know not to try and time the market, yet this seems to be the topic I get questioned about the most.  No one can time the market consistently. Stock Market Forecasts are like weather predictions, just trying to tell the future.   Have you ever watched the weatherman say zero percent chance of rain, yet you seem to be getting wet?

You have no control over what the market will do today, in the next few months or even years. But if you are putting money away monthly you will often get to buy some more shares on sale.  You control what you invest in, and how you invest in it.

Investing mistake to avoid #2

Freaking out when the market moves:

This can go either way.  “OMG, I don’t want to miss out the market is going up so fast!” Or “WTF Stock X dropped big today, the world is ending”.     You don’t have to be the smartest person in the room to do well with investing, you just have to avoid some of the mistakes other people are making.  At this point, the biggest mistakes people have made in the last decade (and are still making) are panicking from/during/after 2008.  Fear from the crash has kept many people from investing at all, let alone saving the right amounts to meet their specific financial goals.

The market drops, we haven’t had a big drop in seemingly forever, but you should expect a 10% or more drop at some point every year.  Even with a tiny fluctuation in the market, the 24-hour news cycle will make it sounds like the world is ending.   They may be right someday, but as far as it relates to your portfolio- if the world actually does end, how the stock market did that day will probably be the least of your worries.

Look at 2020, a terrible year in general, but an amazing year for the stock market.  2021 was a pretty great year for the stock market as well.  If you have bailed during the COVID Recession Bear Market you would have missed out on all the growth in the stock market for the rest of the year. 2022 has seen us spend a lot of time waiting for a recession to come, and the stock market fell into bear market territory. 

Investing Mistake to avoid #3

Underestimating Your Emotions:

Sometimes the market is hot, everything thinks they can’t lose. If you feel you can’t lose it becomes much easier to pile on the risk, which increases the odds of your losing big.

When the market is going down, people freak out. It happens, we know it happens. The problem is when you think you can handle the volatility that may come with investments that are more aggressive and more likely to give you a more violent roller coaster ride than you want.    Talking about a 10% price drop is one thing, ignoring it is another.    I’ve been helping people make smart financial decisions for over a decade some of my long-term clients used to get nervous about their investments wondering if the sun will ever come up again after sunset, now they seem to take all the daily ups and downs in stride.

What to do now to avoid these investing mistakes:

I believe a truly diversified well-managed portfolio with meaningful contributions is the best way to build your wealth up over the long term.  Whether the market is great or crappy this or next year really doesn’t matter that much in the big picture, the important thing is you make a smart decision with your investments and stay on track for your financial goals.  If you don’t think you can do it alone, don’t feel bad most people can’t or won’t. Work with a trusted fiduciary Certified Financial Planner to help craft your financial plan and investment strategy.  And let them deal with all the fun stress that goes with it.

Related: Bear Market Investing Mistakes Video

Live for Today Plan for Tomorrow.

DAVID RAE, CFP^®, is a Los Angeles retirement planning specialist with DRM Wealth Management, a regular contributor to Forbes.com,  Advocate.com, and Huffington Post and a financial advisor serving the friends of the LGBT community. Named one of the  “100 Most Influential Financial Advisors” 5x by Investopedia.

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