13 Dumb Investing Moves — and How to Avoid Them

The concept of saving for a rainy day has probably been around as long as there have been humans. Something deep inside us wants to prepare for an uncertain future by setting something aside — whether it’s extra food, a trunk full of gold or an emergency fund.

But saving smartly is harder than it sounds. Ideally, we want our savings to work hard for us. So, we try to invest wisely in the right mix of assets. But we often fall down on that task.

Here are some of the costliest mistakes investors make — and tips for avoiding them.

1. Not investing

The biggest mistake would-be investors and savers make is not investing at all.

Don’t wait for that raise, inheritance or lottery win. Start today, right now, with whatever amount you can.

If you can’t find $5 a day, start tracking your expenses to see where you can cut costs. We partner with a budgeting app called YNAB (short for “You Need A Budget”).

2. Being impatient

In “The 10 Commandments of Wealth and Happiness,” Money Talks News founder Stacy Johnson offers this advice: Live like you’re going to die tomorrow, but invest like you’re going to live forever. He also offers an example of how patience pays:

“The biggest winner in my IRA is Apple. I believe I bought it in 2002 or 2003 and I still have it. Had I been listening to CNBC or some other media outlet promoting trading, I almost certainly wouldn’t still own it.”

In other words, don’t act rashly.

3. Investing before doing your homework

I’ve made the mistake of going on gut instinct and 20 minutes of internet research when investing in risk-based assets like stocks.

In college, I decided to start investing as a way to build my retirement. Good plan.

But I invested in companies I knew and liked, rather than actually understanding them. Bad plan.

Don’t invest without a clue. If you’re thinking about stocks, there’s plenty of research and other information available online for free, not to mention in books at the library. There’s no reason to be uninformed.

4. Not diversifying

Investing in stocks involves what’s known as market risk: If the entire market tanks, your stocks probably will as well. It also involves company risk — the risk that a specific company will do poorly.

It’s hard to eliminate market risk, but you can reduce company risk by investing in lots of businesses, including firms of different sizes and companies in different sectors.

One easy way to get this type of diversification is to own mutual funds. A mutual fund allows you to own a slice of hundreds of companies.

5. Taking too much risk

Everybody wants to double their money overnight. But if you’re always swinging for the fences, you’re going to strike out often.

Some investments are little more than gambling — such as stock options and commodities futures. These types of investments can work out for some experts, or those who are exceedingly lucky. But if they’re all you’re going to invest in, you’re really just gambling.

6. Not taking enough risk

On the other side of the coin, some investors stand like deer in headlights, unwilling to take even a measured amount of risk. Instead, they keep savings in insured bank accounts, earning peanuts in return.

Putting all of your money in insured accounts will guarantee that you never lose anything. But it will almost surely mean the purchasing power of your savings won’t keep pace with inflation. In other words, you’ll become poorer over time.

7. Getting greedy

The first time I made money on a stock, I was hooked. I went from a stable, thoughtful investor to a wild speculator overnight.

Thankfully, my father stepped in and convinced me to stop sprinting and start walking again. If he hadn’t, I probably would have blown my entire savings.

8. Paying too much attention

There is such a thing as information overload. With the internet, newspapers, magazines and cable TV, it’s easy to get more than your fill of conflicting information.

Step back, look at the big picture and find a few financial journalists or others you trust. Then, tune out the rest.

9. Following the herd

Billionaire investor Warren Buffett has said, “Be fearful when others are greedy; be greedy when others are fearful.”

Many of the stocks Stacy owns were purchased when the Dow Jones Industrial Average was below 7,000 and nobody was buying — an example of being greedy when others are fearful.

His logic is as follows:

“If you’re convinced the economy is going to zero, buy guns and canned goods. But if you can reasonably expect a recovery someday, invest — even if that day is a long way away, and even if it’s possible things could get worse before they get better.”

10. Holding on when you should be letting go

Stocks are best played as a long-term game. You should hold on to stocks long enough to see a good return. However, if you don’t know when to get out, it can cost you big. Companies can go bankrupt, for example.

So, while you shouldn’t obsess over your investments, you shouldn’t ignore them either.

11. Being overconfident

The economy runs in cycles of boom and bust. When times are good, people often confuse luck with skill.

Such misunderstanding arguably played a role in what happened during the housing bubble and the dot-com bubble that preceded it. Being in the right place at the right time isn’t the same as being smart.

12. Failing to adjust

How you invest should change as your life changes. When you’re young, it makes sense to invest aggressively, because you have time to recoup from mistakes. As you approach retirement age, you should reduce risk.

The Great Recession wiped out the savings of many people who were on the verge of retirement. That shouldn’t have happened, because they shouldn’t have had that much exposure to stocks so close to retirement. Check out “Build a Successful Retirement Plan With These 5 Steps” for tips on avoiding such a fate.

13. Not seeking qualified help

Investing isn’t rocket science. But if you don’t have the time or temperament, consider getting help.

The wrong help? That would be commissioned salespeople more interested in their financial success than yours. The right help? A fee-based planner with the right blend of education, credentials and experience. Stop by our Solutions Center and check out “How to Find Your Perfect Financial Adviser” to learn more.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
10 Colleges That Offer Free Tuition for Seniors

These schools let retirement-age students study, tuition-free, while earning college credit.

14 Uses for WD-40 That Save Money, Time or Headaches

WD-40 is handy in a lot more situations than you likely realize.

7 Small Appliances You Don’t Need — and What to Use Instead

Here’s how to get the job done without blowing money — or losing counter space.

7 Surprising Ways Retirees Waste Their Savings

You can make your retirement money last a lot longer by avoiding these costly mistakes

70% of Older Adults Botch This Basic Retirement Question

Can you answer this fundamental retirement income question?

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

8 Tips for Retiring Comfortably on Social Security Alone

It’s never too early to start learning how to live well while living on less.

Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

11 Generic Products You Should Buy at Costco

Not all generics are worthwhile, but these are among the best from Costco’s Kirkland Signature brand.

9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

15 Free Streaming Services to Watch While Stuck at Home

These free movie streaming sites offer thousands of movies and TV shows, including recent releases and beloved classics. If you love free movies, online sites are where you need to look for the best list of features that are just one easy click away.

6 Legal Documents Retirees Need — but Don’t Have

Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.

These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?

The rules are complicated when it comes to eligibility for survivors benefits.

27 Things You Should Never Pay For — and How to Get Them for Free

When you know the tricks, you can save big on all kinds of useful things that others pay for.

15 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

10 Things I Always Buy at Trader Joe’s

From snacks to sweets to side dishes, stock your cart with these time-tested favorites on your next TJ’s run.

9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.