4 investing mistakes I see over and over as a financial planner


  • As a financial planner, I have witnessed many important investment mistakes.
  • Trying to synchronize the market, hold concentrated stock positions, and take too much risk are just a few.
  • One of the biggest? Don’t invest at all. Make a plan, then go for it.
  • Read more articles on Personal Finance Insider.

In my opinion, as a financial planner, you need to invest if you want to grow your wealth. Participating in the financial markets is a great way to put your money to work so that you can grow your assets over time.

But this path is fraught with potential pitfalls that you must avoid if you want to have a positive long-term outcome. And for most people, avoiding big mistakes is more important than hitting home runs consistently.

To help you do just that, here are four mistakes to watch out for with your own investments – and a handful of simple strategies to keep you on track over time.

1. Try to time the market

It’s tempting to think that you can avoid recessions and market downturns, because these events seem so obvious in hindsight. The problem is, that’s the only time the path is crystal clear: once it’s behind you.

In the spring of 2020, my company received a few clients to say that they wanted to move all of their cash investments. The coronavirus was spreading across the world and watching the market lose 30% so quickly was frightening.

Because we work with people in their 30s and 40s, our investment strategies take into account very long time horizons. Fortunately, all of these customers listened to our advice on staying the course – and were extremely grateful for doing so at the end of the summer of that year, when the market was once again reaching new highs.

It’s easy to think you would have known better in hindsight. In the present moment, however, things are much darker and more uncertain. Trying to guess what the market will do next leaves you vulnerable to emotional decision making, rather than rational planning.

If you are focused on growing wealth over decades, then worrying about what the day-to-day market is doing is a distraction. We expect some ups and downs along the way, but as long as you stay consistent – and stay in the market, rather than jump in and out – you’ll be in a much better position to be successful.

You may get lucky with market timing once or twice, but it’s a bad strategy for long term success. Instead of relying on chance, set a strategic course for your investments and stick to it over time.

2. Thinking irrationally about risk

Most people understand the basic concepts of investing and risk. They know that investments carry a risk of loss and that the greater the potential reward, the greater the risk required.

But for some reason most people are very bad at applying these concepts to their own circumstances.

People overestimate their own skills while minimizing the role of chance in the results; they know that unfortunate events happen but tend to think of bad things that happen to them other people, not themselves.

This can lead to very big investment mistakes, such as:

  • Make speculative bets in the market, rather than maintaining a diversified portfolio with an appropriate allocation both for their risk tolerance and their ability to assume the risk
  • Attribute positive results entirely to skill and bad results entirely to bad luck, which can reduce the quality of future investment decisions
  • Ignoring risk entirely when evaluating an investment that is emotionally attractive

It is difficult to maintain a completely rational and objective view of our own money. It is good to have an outside perspective, at least every now and then, which is where professional advice can be extremely valuable.

3. Maintain highly concentrated portfolio positions

The other day my firm spoke with a potential client who shared that he had a total net worth of $ 3 million – of which $ 1 million was held in shares of the company he owned through a equity compensation program.

Since 33% of their net worth depends on the share price of a single company, they take a lot of unnecessary risk. If something were to happen to this business (or if she were to lose her job at this business), her net worth could drop, she could lose the ability to fund her goals, and her whole financial future could be in jeopardy.

All investments come with risk, but a diversified portfolio helps mitigate the risks you face. It also helps reduce the overall volatility of your portfolio (and low volatility portfolios tend to perform better over the long term).

Concentration risk, on the other hand, unnecessarily does the opposite of your portfolio: it increases the investment risks you face and introduces higher volatility.

Our general rule of thumb is to limit exposure to a single equity position to a maximum of 5% of liquid equity. There are exceptions, of course, but it’s a good starting line to use when considering selling or holding a position.

4. Avoid investments completely

There is no shortage of investment mistakes you can make. But perhaps the most important is a little counter-intuitive: don’t invest at all.

I usually see it taking one of two forms:

  1. Someone always finds reasons to wait to start investing: they will start when they have more savings, when they earn more money, when something changes in the market, etc.
  2. Someone builds a good saving habit and raises a lot of money, but leaves everything in the bank because they are afraid of taking any investment risk.

In the first case, this is a huge mistake, because the biggest advantage you can give yourself when it comes to growing your wealth is the time you give your money for compound returns. .

Warren Buffett is not incredibly rich because he is an investment genius (although he is certainly good at it). It’s because his money has been compounded for over 70 years, thanks to the fact that he started so young.

Don’t look for excuses to start investing. Do it now and refine and improve your approach as you go.

In the second case, the error here is not to understand that having money without earning anything is too a risk. People feel a false sense of security when they have a lot of money when they do not understand that money loses purchasing power over time due to inflation.


is important, but if you don’t need that money for many years, growth is also essential. Have a strategic way of determine how much money you really need – then consider investing the rest.

Simple strategies to improve your chances of success

These aren’t the only mistakes you can make with your investments, but they are some of the most common and widespread that I see in my job as a financial planner. If you want to avoid them yourself, you can keep the following basic strategies in mind:

  • Choose a strategic investment plan and stick to it
  • Invest for the long term and avoid high risk approaches like day trading, speculation or market timing
  • Know both your risk tolerance and your ability to take risks. Then, think as objectively as possible about the risk (and know that bad things can happen to anybody, even you!), even if it means calling on an objective outside person to help you make decisions
  • Maintain a globally diversified portfolio to reduce risk and volatility

And of course, just To start. There is no such thing as a perfect investment strategy or a perfect portfolio. Some mistakes along the way may be inevitable, but the most important thing is to enter the market and stay there as long as possible.


Leave A Reply