8 common investing mistakes and how to avoid them

Jamie Viceconte, Head of Investment Product | Citizens Wealth Management

_{Jamie joined Citizens Wealth Management in 2022 and is responsible for the curation and management of the investment product suite of ETFs and Mutual Funds, and portfolio models constructed with these products. As a strategic partner, he has over 30 years of experience in financial markets focused on a broad array of public and private equity and fixed income products.}

Legendary investor Benjamin Graham said, "The investor's chief problem, even his worst enemy, is likely to be himself."

Successful investing involves knowing yourself and your finances, having discipline and staying updated on research and trends. It also involves understanding how you could improve your approach. You may be doing well investing on your own, but there's always room to reflect, adjust and optimize so that you're doing even better.

Here are eight of the most common investing mistakes to watch out for when managing your own portfolio so you can spot where to make improvements.

1. Lacking a clear financial plan

The most successful strategies often involve identifying your goals, time horizons and risk style and crafting a plan that's tailored to these objectives. When you have a road map, you can better gauge whether you're headed in the right direction and on pace for your goals. You can make smarter investment decisions if you know you want your portfolio to, for example, cover your child's college education 10 years from now or allow you to retire with ample lifetime savings at age 50.

2. Misunderstanding true risk tolerance

Assessing and understanding your risk tolerance can be challenging without an outside perspective. Being "comfortable" with an aggressive strategy may mean something different to you than someone else because of influencing factors like age, family status, overall financial standing, time horizon and more.

Even once you've identified how much risk you can handle, it's important to revisit it often. Being aware of what an extreme market or economic downturn would mean to you at different life stages can lead you to adjust your investments for potentially better outcomes.

3. Failing to diversify and rebalance

Putting all your money into one type of investment or concentrating on one sector can be risky. Most financial advisors recommend breaking out and diversifying when it comes to a long-term investing approach. While diversification does not guarantee a profit or protection from a loss, it can help to spread your risk so that one set of poor-performing investments doesn't upend your whole plan.

It's also wise to regularly rebalance your portfolio. Your investments can drift from your target allocations due to market fluctuations or changes in your timeline or goals. The benefit of having a qualified financial advisor is that they can remind you to periodically check that your portfolio choices are still meeting your current and future needs.

4. Trying to time the market

Trying to time the market by buying low and selling high is notoriously difficult. If you frequently buy and sell based on short-term market volatility, you may incur higher transaction costs and can miss out on long-term gains. In fact, research indicates that some of the largest stock market gains have occurred after big declines¹, meaning that if you're out of the market during the top-performing days, your long-term returns could be significantly reduced.

5. Chasing performance

Like market timing mistakes, it can be tempting to chase recent top-performing investments or follow the crowd without conducting research. When you know the background or have someone with experience on your side, you can better recognize when assets seem overpriced and likely to end up being underwhelming because it's what everyone else is doing.

You'll be much more empowered if you know what you're putting your money into, understand the trends of those assets and have a long-term plan that's built to withstand market movement.

6. Ignoring fees and expenses

High fees and expenses can eat into investment returns over time. Be aware of the costs associated with your investments, including account management fees, trading commissions and taxes.

It may seem counterintuitive, but enlisting a financial advisor could help you navigate these expenses to your best advantage. It may also be less pricey than you think. Depending on your account specifics and whether they charge based on your asset total, fixed fees or hourly fees, an advisor may cost less than 1% of your portfolio. The insights and expertise they provide may make it worth partnering up.

7. Making emotional decisions

Emotional reactions to market fluctuations or expecting but not receiving immediate results can lead to impulsive decisions. Investing successfully is often a long-term endeavor that can test your endurance, and it can be difficult to stay impartial. On the opposite side of this, you may become so attached to an investment — or mistakenly believe you'll recover your sunk cost — that you hold on to it for too long.

It's important to have realistic expectations, remain logical about investments and know when and who to ask for advice.

8. Not staying informed

When you're on top of your investments' performance, economic trends, changes in tax laws and market developments, you're in a better position to take advantage of opportunities. Regularly review your portfolio and financial goals, and consider consulting with a financial advisor if you need help staying in the know.

Awareness and avoiding common investment mistakes

The root of wisdom is the awareness of what you don't know. Missteps are an inherent part of investing, but success happens when you learn from them. Repeating the same mistakes without adjustment can lead to ongoing financial setbacks.

You may realize, as Graham suggests, that you're getting in your own way. Consulting a financial advisor can help you feel confident your portfolio is in optimal condition.

A knowledgeable team of advisors can offer knowledge that can help you and your family create a plan to align with your financial objectives. Connect with a Citizens Wealth Advisor* to see what's possible.

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