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The 20 Most Common Investing Mistakes, in One Chart

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The Top 20 Most Common Investing Mistakes, in One Chart

The 20 Most Common Investing Mistakes

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No one is immune to errors, including the best investors in the world.

Fortunately, investing mistakes can provide valuable lessons over time, providing investors an opportunity to gain insights on investing—and build more resilient portfolios.

This graphic shows the top 20 most common investing mistakes to watch out for, according to the CFA Institute.

20 Investment Mistakes to Avoid

From emotionally-driven investment decisions to paying too much on fees, here are some of the most common investing mistakes:

Top 20 MistakesDescription
1. Expecting Too MuchHaving reasonable return expectations helps investors keep a long-term view without reacting emotionally.

2. No Investment GoalsOften investors focus on short-term returns or the latest investment craze instead of their long-term investment goals.

3. Not DiversifyingDiversifying prevents a single stock from drastically impacting the value of your portfolio.

4. Focusing on the Short TermIt’s easy to focus on the short term, but this can make investors second-guess their original strategy and make careless decisions.

5. Buying High and Selling LowInvestor behavior during market swings often hinders overall performance.

6. Trading Too MuchOne study shows that the most active traders underperformed the U.S. stock market by 6.5% on average annually. Source: The Journal of Finance

7. Paying Too Much in FeesFees can meaningfully impact your overall investment performance, especially over the long run.

8. Focusing Too Much on TaxesWhile tax-loss harvesting can boost returns, making a decision solely based on its tax consequences may not always be merited.

9. Not Reviewing Investments RegularlyReview your portfolio quarterly or annually to make sure you’re staying on track or if your portfolio is in need of rebalancing.

10. Misunderstanding RiskToo much risk can take you out of your comfort zone, but too little risk may result in lower returns that do not reach your financial goals. Recognize the right balance for your personal situation.

11. Not Knowing Your PerformanceOften, investors don’t actually know the performance of their investments. Review your returns to track if you are meeting your investment goals factoring in fees and inflation.

12. Reacting to the MediaNegative news in the short-term can trigger fear, but remember to focus on the long run.

13. Forgetting About InflationHistorically, inflation has averaged 4% annually.

Value of $100 at 4% Annual Inflation
After 1 Year: $96
After 20 Years: $44

14. Trying to Time the MarketMarket timing is extremely hard. Staying in the market can generate much higher returns versus trying to time
the market perfectly.

15. Not Doing Due DiligenceCheck the credentials of your advisor through sites like BrokerCheck, which shows their employment history and complaints.

16. Working With the Wrong AdvisorTaking the time to find the right advisor is worth it. Vet your advisor carefully to ensure your goals are aligned.

17. Investing With EmotionsAlthough it can be challenging, remember to stay rational during market fluctuations.

18. Chasing YieldHigh-yielding investments often carry the highest risk. Carefully assess your risk profile before investing in these types of assets.

19. Neglecting to StartConsider two people investing $200 monthly assuming a 7% annual rate of return until the age of 65. If one person started at age 25, their end portfolio would be $520K, if the other started at 35 it would total about $245K.

20. Not Controlling What You CanWhile no one can predict the market, investors can control small contributions over time, which can have powerful outcomes.

For instance, not properly diversifying can expose you to higher risk. Holding one concentrated position can drastically impact the value of your portfolio when prices fluctuate.

In fact, one study shows that the optimal diversification for a large-cap portfolio is holding 15 stocks. In this way, it helps capture the highest possible return relative to risk. When it came to a small-cap portfolio, the number of stocks rose to 26 for optimal risk reduction.

It’s worth noting that one size does not fit all, and seeking financial advice can help you find the right balance based on your financial goals.

Another common mistake is trading too much. Since each trade can rake up fees, this can impact your overall portfolio performance. A separate study showed that the most active traders saw the worst returns, underperforming the U.S. stock market by 6.5% on average annually.

Finally, it’s important to carefully monitor your investments regularly as market conditions change, factoring in fees and inflation. This will let you know if your investments are on track, or if you need to adjust based on changing personal circumstances or other factors.

Controlling What You Can

To help avoid these common investing mistakes, investors can remember to stay rational and focus on their long-term goals. Building a solid portfolio often involves assessing the following factors:

  • Financial goals
  • Current income
  • Spending habits
  • Market environment
  • Expected returns

With these factors in mind, investors can avoid focusing on short-term market swings, and control what they can. Making small investments over the long run can have powerful effects, with the potential to accumulate significant wealth simply by investing consistently over time.

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Investor Education

The Top 5 Reasons Clients Fire a Financial Advisor

Firing an advisor is often driven by more than cost and performance factors. Here are the top reasons clients ‘break up’ with their advisors.

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The following content is sponsored by Morningstar
This circle graphic shows the top reasons for firing a financial advisor.

The Top 5 Reasons Clients Fire a Financial Advisor

What drives investors to fire a financial advisor?

From saving for a down payment to planning for retirement, clients turn to advisors to guide them through life’s complex financial decisions. However, many of the key reasons for firing a financial advisor stem from emotional factors, and go beyond purely financial motivations.

We partnered with Morningstar to show the top reasons clients fire an advisor to provide insight on what’s driving investor behavior.

What Drives Firing Decisions?

Here are the top reasons clients terminated their advisor, based on a survey of 184 respondents:

Reason for Firing% of Respondents
Citing This Reason
Type of Motivation
Quality of financial advice
and services
32%Emotion-based reason
Quality of relationship21%Emotion-based reason
Cost of services17%Financial-based reason
Return performance11%Financial-based reason
Comfort handling financial
issues on their own
10%Emotion-based reason

Numbers may not total 100 due to rounding. Respondents could select more than one answer.

While firing an advisor is rare, many of the primary drivers behind firing decisions are also emotionally driven.

Often, advisors were fired due to the quality of the relationship. In many cases, this was due to an advisor not dedicating enough time to fully grasp their personal financial goals. Additionally, wealthier, and more financially literate clients are more likely to fire their advisors—highlighting the importance of understanding the client. 

Key Takeaways

Given these driving factors, here are five ways that advisors can build a lasting relationship through recognizing their clients’ emotional needs:

  • Understand your clients’ deeper goals
  • Reach out proactively
  • Act as a financial coach
  • Keep clients updated
  • Conduct goal-setting exercises on a regular basis

By communicating their value and setting expectations early, advisors can help prevent setbacks in their practice by adeptly recognizing the emotional motivators of their clients.

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Curious about what drives investors to hire a financial advisor? Discover the top 5 reasons here.

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