I started investing in stocks when I was 19. Since then, I’ve literally made all kinds of investing mistakes in the book.
I’ve bought and sold nearly every financial instrument you can think of: Common stocks, options, futures, ETFs, mutual funds, gold, bitcoin, ethereum, and more.
The first chancellor of the German Empire, Otto von Bismarck, probably would’ve called me a fool. Because in those early years, I only learned from my own mistakes. Bismarck famously said:
“Fools learn from experience. I prefer to learn from the experience of others.”
You save yourself a lot of time by learning from the experiences and mistakes others have made. You don’t have to go through the same thing to extract the lessons.
Here are 25 investing mistakes I’ve made that you can steer clear of:
- Investing for Retirement Too Late: From age 19 until 29, I thought investing was about making a quick buck. So naturally, I lost money. I didn’t grasp the power of compound interest early enough. Time is the investor’s best friend. Invest in your retirement as early as possible (which is always NOW).
- Ignoring Employer-Matching: While I’ve been self-employed for most of my life, I did work for an IT research firm, which offered matching contributions to my retirement contributions. I didn’t max that out. It’s free money! Take full advantage.
- Not Creating a Financial Plan: Without a roadmap, I was always aimlessly investing and trading. A solid financial plan helps guide investment decisions.
- Trying to Predict the Market: “I’m going to sell now and then buy when the market is down again,” I told myself many times. My success rate was not great. The market is unpredictable. Consistent investing, not timing the market, yields better results.
- Borrowing Money to Buy Stocks: This is also called using margin or leverage. It can be really powerful. But the power goes both ways. For most people, using margin goes the negative way.
- Not Diversifying: When I started investing, I bought two stocks. Both were in the financial industry. And that was in 2007. You got that right, a year before the financial crisis. The result was really bad.
- Not Understanding Investments: I bought options after reading a single book on the topic. I could’ve lost way more money at that time than I did!
- Chasing Hot Stocks: Following the herd often leads to buying high and selling low. Stick to your plan, not the crowd.
- Ignoring Fees: Small fees add up over time. Always consider the cost of investing.
- Being Impatient: Most of the mistakes in this list, I made a handful of times. But this one, I made many times! Because it’s so hard to be patient. But trust me, patience pays off BIG.
- Failing to Review My Portfolio: If you want to pick stocks and be your own money manager, you need to do regular portfolio reviews so you make sure your investments are within your goals. If you’re a passive investor, you don’t need to do this at all.
- Looking Too Often to My Portfolio: If you’re looking at your investments every day, you’re increasing the risk that you do something stupid.
- Forgetting About Taxes: Investment decisions can have tax implications. Don’t forget about that as you buy and sell!
- Not Setting Financial Goals: Honestly, I thought I needed to invest tens of thousands of dollars every month to retire comfortably. But it turns out that you can do pretty well with only $500 a month. Setting financial goals forces you to make some calculations. And that will give you clarity.
- Neglecting an Emergency Fund: I really didn’t know what an emergency fund was until I was 30.
- Avoiding Risk Completely: Look, nothing is risk-free. Some risk is necessary for growth. The key is finding a balance you’re comfortable with.
- Not Paying My Debt Quicker: I walked around with my student debt for longer than necessary. As soon as you can, start getting rid of it bit by bit. Letting debt chain us for too long is one of the least productive investing mistakes to have.
- Not Taking Inflation Seriously: Inflation erodes purchasing power. Your investments should aim to outpace it (in most cases, stocks do that).
- Ignoring Passive Income Opportunities: I could’ve bought an apartment in 2012 when I started making a little bit of income. House prices were still really low. I passed and rented. Stupid decision. Buying property in good locations is rarely a bad deal (unless you massively overpay).
- Falling for Get-Rich-Quick Schemes: I bought some of those stupid pump-and-dump cryptocurrencies in 2021. Yeah, not smart. And still one of my biggest investing mistakes so far.
- Not Taking Advantage of Tax-Advantaged Accounts: Most countries have some kind of tax-advantage account like IRAs and 401(k)s. When I started, I completely disregarded tax breaks, which meant I missed out on future money.
- Letting Emotions Drive Decisions: I can’t tell you how often I made investment decisions without feeling a storm in my stomach. Not good. Investing decisions will spark some emotions, but you should stay cool when you invest big amounts of money.
- Not Continually Learning: Investing and human behavior is complex. Continuous learning about everything is the key to successful investing.
- Not Seeking Professional Advice When Needed: I thought I could do it all myself. But sometimes, professional advice can be invaluable. My accountant has helped me save thousands.
- Becoming Afraid of Investing: Because of its perceived volatility, risk-averse people have avoided the stock market. But they’re missing out on building wealth from the progress that robust companies are making. We can’t let fear control our finances.
These are the lessons I’ve learned from my personal finance journey. And while everyone’s path is unique, avoiding these common mistakes can put you on the road to financial success.
The goal isn’t to achieve perfection but to make better decisions over time.
