10 Worst Investing Mistakes To Avoid at All Costs, According to Financial YouTuber Tae Kim
Written by
Nicole Spector
Edited by
Zuri Anderson
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
When you’re just getting started investing, it’s natural to feel intimidated and honestly, that’s not the worst thing.
Investing is a major, lifelong journey. There’s a lot to learn and a lot to navigate. It’s better to feel intimidated than to feel excessively confident, because there are inherent risks to investing and you need to be incredibly careful about what you do.
In a YouTube video, Tae Kim, founder of Financial Tortoise, a YouTube channel focused on personal finance and slow wealth-building, explored the 10 worst investing mistakes each of us must avoid at all costs. Read about them to build well-earned confidence and break past some of the fear.
Plus find out several ways to invest that don’t involve the stock market.
You Own Too Many Accounts
How many Roth IRAs do you have and at how many different firms? How many savings accounts do you have?
Listen, it’s good to have your money spread out; but it’s not good to have it scattered all over the place in ways that can’t be easily streamlined.
“You want to be careful to not overcomplicate your finances that you have no idea where you stand with your investments and finances,” Kim said.
You Pay Too Much in Investing Fees
Investment fees come with the territory of investing — but you could be overpaying and not even realize it.
You can conduct a quick test to see if you’re overpaying. Kim said to log in to your 401(k) plan, take a look at one of your most sizable investments, and find its Expense Ratio.
“If the ratio is below 0.1%, that is not bad,” Kim said. “If it is more than 0.1%, I would try to understand why, especially given that most actively managed funds fail to beat the market.”
Paying 1 to 2% to a funds manager may not sound like much, but Kim explained that when you compound 2% over several decades, it can add up to hundreds of thousands of dollars. That money could be gone towards other, high-performing investments.
You Pay Too Much in Taxes
Taxes are the law of the land and you’ll have to pay some, but you could be overpaying here, too. The key is to find legitimate ways to minimize your tax burden.
“When it comes to investing, one of the easiest ways to pay less in taxes is to maximize all tax advantage accounts available to us,” Kim said. “Think of accounts like 401(k), 457, Roth IRA and Health Savings Account.”
Each of these accounts comes with tax advantages in their own ways.
Your Portfolio Is Designed With Too Much Complexity
Investment portfolios don’t need to be super simple, but they definitely shouldn’t be overly complicated. You want to be able to navigate them with ease.
Typically, people complicate their investment portfolios with the savvy intention of maximizing diversification. Though diversification is critical for all investors, assembling a labyrinth of asset categories and subcategories can confuse things.
“The fact is that often a simple two- or three-form portfolio that covers the entire U.S. stock market, international market and high-quality bonds is likely to perform just as well, if not better than a complex and supposedly sophisticated portfolio over a long period,” Kim noted.
You Forget To Reinvest Dividends
You need to be automatically reinvesting your dividends rather than letting them sit idle. By reinvesting them, you’re making them make money — just like you are your other investments.
“I’ve seen accounts where the account holder didn’t realize that they didn’t have ‘automatically reinvest dividends’ enabled,” Kim said. “So they had a bunch of cash piling up on the side in a settlement account that is earning pretty much nothing.”
Make sure you consistently reinvest back into the fund they came from — even if your dividends are “only” in the arena of 1 to 2%. Doing this is as simple as clicking “enable” on your account.
You’re Too Tuned into the News
Hey, it’s smart to keep a pulse on the goings on of the stock market and the economy at large. But it’s dangerous to be too tuned in.
You may fall prey to panic or become overly enchanted with a new investing trend. Manage your time well and dial down your emotional reactions when you engage with any media, however intelligent, about the markets.
“These newspapers and magazines make a living by selling subscriptions and ads,” Kim said. “Their primary objective, apart from sharing information, is to gain readers. How to get more readers? Write interesting articles — articles that grab people’s attention. Having more information is good; however you have to read these within broader context.”
The market is designed to ebb and flow, and rarely should a dip or a bump or even a full on shockwave totally overhaul your investment strategy.
You’re Constantly Chasing Higher Returns
It’s every investor’s dream to beat the market. It’s also a fool’s errand. Just like following every single thing that happens in the market news, constantly chasing higher returns has the potential to wreak havoc on your long-term gains.
“The truth is, we do not know what companies will do well or not do well over the long run,” Kim said.
Companies are only as good as their leadership teams. And no crystal ball can tell you whether or not they will navigate the times ahead in the best way possible for their company or, in turn, your money.
You’re Too Conservative
Investing has its risks, as noted, and the mere fact that it does can scare people off from diving in too deep. Though it’s important to be balanced, and to lean conservative if you’re nearing retirement, don’t sit out every opportunity to be a little aggressive.
The younger you are, the more aggressive you can be (within reason), because again, in the smartest game in the world (investing), time is on your side.
You’re Impatient
When will you make the money? When?! It’s easy to obsess over how your investments are performing as you search for the windfall light at the end of the investing tunnel, but you gotta chill out.
“We don’t expect an apple tree to start bearing fruit the day after we plant a seed. We understand that it takes years,” Kim said. “So why is it that when it comes to investing, we expect our money to grow overnight?”
Make like Warren Buffett and just be patient. Money will amass and you will be just fine.
You’re Obsessing Over Investing — And Missing Out on Life
Investing is so very important. But you know what’s even more important? Enjoying your life for as long as you get to.
Spend time with your loved ones. Get out in nature. Have fun. By the time you’re retired, you may not be able to do everything you were able to do when you were younger. Don’t let money rule your life when the whole point of it is to enrich your life.
Money “shouldn’t be the sole focus of our lives,” Kim said. “So take all these investing mistake lessons and try to avoid them as much as possible. However, once you have your portfolio dialed in and your finances under control, go on and live your life.”
More From GOBankingRates
