No one is immune to errors, including the best investors in the world.Fortunately, investing 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 most common investing 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 of the most common investing mistakes:
Value of $100 at 4% Annual Inflation
After 1 Year: $96
After 20 Years: $44
the market perfectly.
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 common investing mistakes, investors can remember to stay rational and focus on their long-term goals. Building a solid portfolio often involves assessing the following factors:
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.More By This Author:Charted: U.S. Retail Investor Inflows (2014–2023)The World’s Top 25 Defense Companies By Revenue Charted: The Key Investment Theme Of Each Decade (1950-Today)