Investment decisions should be driven by a long-term plan, rather than by gut feeling or current events.
Holding a well-diversified mix of investments has often led to better outcomes, historically, rather than focusing only on the market's top movers.
Interest rates on short-term CDs and Treasurys may still be high, but holding too much in these investments could hurt long-term growth potential.
Investors may be focused too much on the risk of a market pullback, and too little on the chance that the market keeps rising.
Every investor can look back on their track record and think of a few things that they wish theyâd done differently.
If you see yourself in any of the mistakes below, donât beat yourself up or lose sleep. Instead, remember that investing is a lifelong learning process, and a big part of that process is getting real-world experience and learning from your mistakes. The best anyone can do is try to learn and move on.
And if you read through the list below and donât recognize yourself in any of the mistakes then congratsâyou might be a better investor than you realize.
Read on for 7 top mistakes that investors are making now.
1. Worrying that every market stumble is the start of a crash
Sudden market pullbacks are always unnerving. And investors who are already anxious about stocks might see every market stumbleâsuch as the ones experienced in April, July, and August of this yearâas the potential start of a major downturn.
But the truth is these temporary setbacks are actually routine occurrences in the stock market. âMarkets donât go up in a straight line,â says Denise Chisholm, director of quantitative market strategy for Fidelity. âMarket corrections and steep pullbacks always feel like a panic. But in fact theyâre very common.â Just as a mountain climber needs the occasional break to refresh, the market sometimes needs to take a breather and regroup before it continues its march.
Oftentimes, these pauses or temporary declines signal that the market is processing new information and that investors are recalibrating their expectations. Far from always being bearish signs, sometimes these dips can indicate that the market is coming into better balance. (Read more about why the recent pullback may have actually created opportunity potential.)
2. Avoiding the stock market because itâs gone up
Even after the marketâs recent pullback, US stocks have had a strong year so far. Given the series of new all-time highs itâs made in the past few months, many investors may be wondering if itâs time to get out, not in.
âAfter seeing the stock market rise quite a bit, many investors start to wonder whether or not this may continue,â says Naveen Malwal, institutional portfolio manager with Strategic Advisers, LLC, the investment manager for many of Fidelityâs managed accounts. âHearing that the market has made an all-time high may even make some investors nervous enough that they avoid investing more or even cash in some of their winners.â
Part of the concern may stem from misunderstandings of market history. When investors and analysts describe past market cycles, they often note that the market made a new all-time high before declining, with the all-time high marking the end of a bull market and the start of a bear market.
But this can lead to a misconception that any all-time high will precede a pullback. âIf you look back historically, the market making an all-time high is a very common occurrence,â says Malwal. Bull markets have often spanned multi-year periods when the market has made one all-time high after another. Investors who took every all-time high as a sell signal would have missed out on substantial gains.
âItâs not true that whenever the market has made an all-time high, a correction has come around the corner,â says Malwal. âMore often, the market has continued to rise.â
3. Focusing too much on a narrow group of stocks
The recent bull market has been unusually concentrated, with only a few stocks accounting for an outsized portion of the marketâs returns since 2022.
This kind of market dynamic can be a recipe for investor distress. Investors who missed the ride can get hung up on regrets. âMany of us end up kicking ourselves for not having invested more in a space that has done remarkably well,â says Malwal. Investors who caught the wave may see their portfolios grow increasingly concentrated, and face the fraught decision of whether or when to sell.
But ultimately, trying to make big bets on small groups of stocks may be very risky, and leave an investor vulnerable to a correction. Instead of fixating on recent big movers, focus on formulating a sensible and well-rounded plan for the future.
âRather than trying to guess whatâs going to be the next big thing, what we have found helps investors more over the long run is to diversify and invest across a whole host of investments,â says Malwal. âInvestors who are diversified may not experience so much of the booms or busts that might occur with a narrower set of investments, so they tend to have an easier time sticking with their plan, and they historically have experienced healthy growth.â
4. Holding too much in CDs and other short-term investments
Short-term CDs and Treasurys have come into favor among many investors in the past 2 years as rates have risen. Many investors feel comfortable in these investments due to their low risk of default and predictable cash flows.
âThere are many wonderful features of short-term investments,â says Malwal. âBut investors with a long-term outlook have historically often been better off in stocks.â
The key challenge with short-term investments is a lack of stronger growth potential. âWhile itâs true that stocks may be more volatile than short-term investments or bonds in the near term, over the long run stocks have provided much higher returns,â says Malwal. Although rates on these investments may appear attractive, they may not be providing much growth after accounting for inflation. Moreover, with rates potentially poised to fall if or when the Federal Reserve starts cutting rates, staying in short-term positions could leave investors exposed to reinvestment risk.
Says Malwal, âInvestors who have time on their side can typically benefit from having a broader exposure to stocks and bonds, or a combination of the 2, as opposed to staying in short-term investments for a long time.â
5. Not factoring taxes into investing decisions
Investors often think of their brokerage accounts as accounts they should use for trading stocks or pursuing their latest ideas. But because brokerage accounts are not tax-deferred, Malwal says this can lead to one of the top mistakes he sees: generating a bigger tax bill than necessary.
Actions like trading a lot and holding tax-inefficient investments can increase investorsâ tax bills. âGenerally speaking, in taxable accounts, investing tax-efficiently and making gradual changes may help investors keep more of what they earn before taxes,â he says. Simple actions like choosing a mutual fund that trades less or keeping in mind the potential benefits of lower long-term capital gains tax rates may help investors keep more of what they potentially earn.
6. Letting the perfect be the enemy of the good
Analysis paralysis can be a problem for any investor.
Even if youâve come up with a solid investing plan, it can be easy to get hung up on âwhat ifâ questions. What if Iâm missing out on an even better investment option? What if the market crashes tomorrow? What if my plan just doesnât work out?
The reality is that investing is inherently uncertain. Even the most experienced investors can only work off estimates, not certainties. While investors might worry about the ârightâ answer to any given investing questionâlike what investment to buy or when to get into the marketâthe fact is there may be a range of reasonable solutions.
But one thing has been true time and again historically: Over long periods, investors have done better by being in the market than being out of the market. If youâve got a well-rounded, suitable plan thatâs sensitive to your financial needs, then donât let hangups about the perfect investment or the perfect time derail you from your goals.
7. Focusing too much on news headlines and politics
Thereâs no shortage of worries or risks in the world right now.
Malwal says he sees many investors staying out of the market in the hopes that the landscape will look more stable at some future time. âSome investors feel like they should wait because thereâs an election happening. Or maybe they want to wait until their candidate is in the Oval Office, or until Congress is favoring their preferred issues,â he says. Others may worry about the tense state of global affairs, or risks to the economy.
Rather than using news headlines or gut feeling as indicators on the market, Malwal suggests investors go deeper into the economic data that actually helps drive the stock marketâlike corporate earnings, economic growth, stock valuations, and consumer spending. This data may not paint as sensational a picture as news headlines, but may be a better guide to market potential. (Read more about the âvibecession,â or why investors may feel the economy is weaker than it is.)
After all, the world has always been perilous. âItâs very rare for me to sit back and think, âThereâs nothing to worry about right now,ââ says Malwal. And yet, through decades of uncertainty and challenging news headlines, the market has still made big strides.