Every investor, even experienced ones, makes mistakes. The “can’t lose” investment that may seem like a great opportunity all too often can lose — and lose big. While there is no guaranteed method for avoiding costly mistakes, recognizing common pitfalls that are really rookie errors can help investors keep their portfolios on track.

Concentrations in a Single Stock or Fund

Investors who are overly confident in their ability to pick winners may invest a large portion of their assets in one stock or stock fund. This concentrated “swing for the fences” approach tempts investors with big potential gains. But in reality, this approach simply moves a portfolio far out on the risk scale with potentially devastating losses.

A more sensible approach is to allocate across different asset classes, such as stocks, bonds, and cash. This approach is called diversification. Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. Diversification also limits exposure to any single asset or risk.

Portfolio Diversification

Practicing diversification takes advantage of the fact different securities and investment types usually do not move in the same direction at the same time. As some investments fall in value, others may rise or hold steady and help offset the losses. While diversification does not ensure a profit or protect against losses, it is a well-tested approach that can help investors manage their risk exposure, and make the investment journey a lot more comfortable.

Trying to Time the Market

Trying to time the market seems easy. Buy and stay invested as stocks are moving higher, then sell and move to cash when the market starts heading south. Then, move out of cash and back into stocks when they renew their climb. Unfortunately, it’s not that simple, and taking this approach is another rookie mistake.

Investors who have allocated their assets appropriately through diversification may be better served staying invested through up and down markets. History has shown investors that markets are cyclical, meaning they will move in every direction. History has also shown us that trying to time those cyclical moves can be extremely challenging, and potentially costly to your investments.

The bottom line: staying invested through all types of market conditions can potentially bring investors closer to achieving their long-term investing goals.

Taking a Short-Term Perspective

Another common rookie error occurs when an investor takes a short-term perspective with money intended for long-term goals. Long-term investors can’t let the day-to-day gyrations of the stock market or other economic factors force them to make irrational buy or sell decisions. History shows that most market corrections are temporary and healthy, and investors who panic and sell their investments in response may likely be sitting on the sidelines when the market starts moving back up.

Taking a long-term perspective and maintaining an asset allocation that is in line with one’s time frame and tolerance for investment risk remains the optimal way to reach long-term goals. And individual investors don’t have to do it alone. Seeking the input of experienced financial professionals can help investors align their investments with their goals and avoid common rookie investing errors.

Written By  Brett Sebion, Financial Coach
Investing 101: Compound Interest
Brett Sebion, Financial Coach  – June 07, 2024
Compound interest might sound complex, but it’s actually based on a very simple principle: earning interest on your interest. Here’s a clear and simplified way of understanding this important concept. Imagine you save some money, let’s say $100, which grows at 10% annually. At the end of the first year, you earn 10% interest on […]
Keep Reading
Building Wealth the Time-Tested Way
Heather Jordan  – May 24, 2024
While it can be pleasant to dream of sudden wealth, it’s not a realistic way to approach retirement planning. If you want to increase your chances of enjoying a financially secure retirement, use a time-tested method — save and invest through a tax-favored retirement plan. It will require patience, but it is doable. Here are […]
Keep Reading
Webinar: 2024 Tips and Limits to Optimize Your Financial Future
Emerj360  – January 03, 2024
Start the year off on a strong financial note! Watch the recap from our first webinar of the year as Heather Jordan, CFP®, MBA, discusses new limits for 2024 and some insightful tips for the new year. New limits we will cover may impact your IRA, HSA, 401(k) account, or your annual gifting strategy. We’ll […]
Keep Reading

What are you waiting for?

Everything we do boils down to this: by doing what is best for you, we do what’s best for our company. Helping you build financial security and plan for retirement so you can look forward enjoying life.
Open Account right-arrow-dark Sign Up Now right-arrow-dark