I still cringe thinking about my first year of investing. Armed with a little bit of knowledge (dangerous), a lot of enthusiasm (misguided), and some money I’d saved up (soon to be less), I dove headfirst into the investing world. Let’s just say mistakes were made. Expensive ones.
If you’re just starting your investing journey, I’m here to help you avoid the facepalm moments that cost me both money and sleep. Here are the seven biggest mistakes I’ve either made personally or watched friends make when they first started investing.
1. Waiting for the “Perfect Time” to Start
I spent nearly two years “researching” before I actually invested a single dollar. Know what that got me? Missing out on one of the biggest bull markets in history. Meanwhile, my friend who knew nothing about P/E ratios but started investing right away has nearly double what I have now.
Here’s the truth: there is no perfect time. Markets go up, markets go down, but historically, they’ve always trended upward over the long term. The best time to start investing was yesterday. The second best time is today.
If the idea of investing everything at once freaks you out, try dollar-cost averaging – investing a fixed amount at regular intervals regardless of market conditions. That’s how I finally got over my analysis paralysis.
2. Trying to Time the Market
“I’ll just wait until the market dips a bit more before buying.” “This stock is definitely going to pop soon, I can feel it.”
Sound familiar? I’ve said both of these things. Neither worked out well for me.
Even professional investors with decades of experience and sophisticated algorithms rarely time the market successfully over the long term. What makes us think we can do it from our phones during lunch breaks?
When I stopped trying to time the market and instead focused on time IN the market, my stress levels plummeted and, ironically, my returns improved. Set it, forget it (mostly), and let time do the heavy lifting.
3. Neglecting to Diversify (Or Over-Diversifying)
My first portfolio was 90% tech stocks because, well, I worked in tech and thought I understood it. When the sector took a hit, so did my entire portfolio. Ouch.
On the flip side, I’ve watched friends buy so many different stocks and funds that they’ve essentially created their own expensive, complicated index fund. Their returns end up matching the market anyway, but with higher fees and more paperwork at tax time.
Find the middle ground. A core portfolio of low-cost index funds covering different asset classes (stocks, bonds) and geographies (US, international) gives you diversification without complexity. Then, if you want to pick individual stocks, limit them to a reasonable percentage of your overall portfolio – I keep mine under 20%.
4. Checking Your Portfolio Too Frequently
I once had the investing app on my home screen and checked it multiple times a day. Every market dip felt like a personal attack. Every rise was a reason to celebrate. It was exhausting and led to impulsive decisions.
Now I check my long-term investments monthly at most. For some accounts, I only look quarterly. Has this affected my returns? Not at all. Has it improved my mental health? Absolutely.
Investing is a marathon, not a sprint. Checking your investments constantly is like stopping every few minutes during a marathon to see if you’re on pace – it just slows you down and wears you out.
5. Chasing Past Performance
“This fund returned 45% last year!” Cool story. How consistent has it been over the past decade? What was its worst year? How much of that performance was due to a single lucky bet?
I fell for this with a tech fund that had two spectacular years. I jumped in… just in time for its worst performance in five years. Classic.
Remember this investing truth: Past performance does not guarantee future results. This isn’t just legal boilerplate – it’s financial wisdom. Look at long-term track records, consistency through different market conditions, and understand what drove the performance before getting starry-eyed over last year’s returns.
6. Letting Emotions Drive Decisions
My worst investing decision came after watching the market drop for three straight days. I panicked and sold a significant portion of my investments. Of course, the market rebounded the following week, and I had to buy back in at higher prices. An expensive lesson in emotional investing.
Markets are volatile by nature. Your investment strategy shouldn’t be. Having a written plan before turbulence hits can help you stay the course when emotions are running high.
When I feel the urge to make a drastic move, I now force myself to wait 72 hours before acting. Nine times out of ten, the urge passes, and I stick to my original plan.
7. Ignoring Fees and Tax Implications
For years, I didn’t realize how much investment fees were eating into my returns. A 1% annual fee might not sound like much, but over decades it can reduce your final balance by tens or even hundreds of thousands of dollars.
Similarly, I made trades without considering the tax implications, leading to some painful April surprises. Now I know better – tax-efficient investing (using tax-advantaged accounts appropriately and being strategic about when to realize gains and losses) can dramatically improve your after-tax returns.
Review all fees associated with your investments and accounts at least annually. For most beginning investors, low-cost index funds in tax-advantaged accounts (like 401(k)s or IRAs) provide the most efficient path to growth.
The Bottom Line: Keep It Simple
The investing world loves complexity – it helps sell expensive products and services. But the truth is, successful investing for most people can be remarkably simple:
- Start early
- Stay consistent
- Keep costs low
- Diversify sensibly
- Control your emotions
- Think long-term
The mistakes I’ve shared came from overcomplicating things, letting emotions take the wheel, or trying to outsmart the market. Learn from my errors so you don’t have to make them yourself.
Remember, perfection isn’t the goal – progress is. You’ll make mistakes along the way (we all do), but avoiding these big seven will put you ahead of most first-time investors.
What’s your investing experience been like so far? Have you fallen into any of these traps, or discovered others I didn’t mention? Whatever stage you’re at, just remember – the fact that you’re investing at all already puts you ahead of the game.