The Six Biggest Mistakes Investors Make – and How to Fix Them

By Kelley Muhsemann
Marketing Manager

Investing can be a rewarding journey, offering the potential for financial growth and security. However, it’s important to navigate this path with caution and avoid the common pitfalls that can lead to financial setbacks. Let’s explore six of the biggest financial mistakes investors make and provide insights on how to steer clear of them.

1. Lack of a Clear Investment Strategy. One of the most significant mistakes investors make is diving into the world of investing without a clear strategy. Some investors jump into the market without a well-defined plan, driven by emotions, tips from friends, or market hype. This lack of direction can lead to impulsive decisions and ultimately result in financial losses.

The Fix: Take the time to create a solid investment strategy. Define your financial goals, risk tolerance, and time horizon. Consider diversifying your portfolio across different asset classes to spread risk. Regularly review and adjust your strategy as your circumstances change.

2. Ignoring Risk Management. Investing always carries some level of risk, and ignoring or underestimating these risks is a common mistake. Some investors focus solely on potential gains without considering the downside. This can lead to a portfolio that is overly concentrated in high-risk assets, leaving you vulnerable to market downturns.

The Fix: To mitigate this mistake, diversify your investments across various asset classes, such as stocks, bonds, and real estate. Additionally, consider using tools like rebalancing to maintain a level of risk you are comfortable with and protect your capital.

3. Chasing Hot Trends. Another common financial mistake is chasing after hot investment trends or trying to time the market. FOMO (Fear of Missing Out) can lead investors to pour money into assets that have recently performed well, only to see their investments plummet when the trend cools off.

The Fix: To avoid this trap, focus on a long-term investment approach. Instead of trying to time the market – which is a fool’s game – consider a dollar-cost averaging strategy, where you invest a fixed amount at regular intervals. This approach helps reduce the impact of market volatility and minimizes the risk of making emotional investment decisions.

4. Neglecting Research and Due Diligence. In the age of easy access to information, failing to conduct proper research and due diligence is a significant mistake. Some investors make investment decisions based on rumors or incomplete information, which can lead to poor choices and financial losses.

The Fix: Take the time to research and understand the assets you’re considering. Evaluate the fundamentals of companies or assets, assess their financial health, and stay informed about industry trends and market conditions. You can also partner with a trusted fee-only financial advisor that will do the research and due diligence on your behalf.

5. Overtrading and High Transaction Costs. Overtrading, or excessive buying and selling of investments, can lead to substantial transaction costs and tax implications. Frequent trading can also result in emotional stress and impulsive decisions driven by short-term market movements.

The Fix: Adopt a long-term perspective and resist the urge to constantly tinker with your portfolio. Keep transaction costs in mind and focus on investments that align with your overall strategy.

6. Neglecting to Ask How Your Financial Advisor is Paid. Investors working with advisors who earn commissions can end up paying higher fees and expenses associated with the financial products recommended. These additional costs can erode investment returns over time. Non-fee-only advisors also lack a fiduciary duty, potentially leaving you with fewer protections.

The Fix: Simply ask your financial advisor how they are paid. You should hear the words “fee-only.” Fee-only advisors are legally obligated to act in their clients’ best interests as a fiduciary. Carefully vet financial advisors before working with them by asking about their compensation structure and ensuring that the advisor is a fee-only fiduciary who is committed to acting in your best interests. You can also ask them to sign a Fiduciary Attestation Form.

Investing can be a fruitful endeavor when approached with care and discipline. By avoiding common financial mistakes, you can increase your chances of achieving your financial goals and achieving your version of financial freedom.

If you would like to learn more about investing best practices, or have questions regarding your financial future and would like to speak with one of our CERTIFIED FINANCAL PLANNERTM (CFP®) professionals, please contact us for a complimentary discovery call at 631.218.0077 or or click here.


R.W. Rogé & Company, Inc. is an independent, fee-only financial planning and investment management firm serving clients locally and virtually across the country, with Long Island, New York, Beverly, Massachusetts, and Naples, Florida office locations. R.W. Rogé & Company, Inc. was founded on a “client first” culture and proudly commits to acting in your best interest as a fiduciary. We help clients Plan, Achieve, and Live® the life they want since 1986. To learn more about how we do this, click here.

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