7 Biggest Mistakes Investors Keep Making, According to Fidelity
Written by
Jacob Wade
Edited by
Rebekah Evans
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
Most investors aren’t losing everything in a stock market crash.
They’re sabotaging their own long-term gains by making small, avoidable mistakes that put a huge dent in their financial goals. In a blog post, Fidelity listed seven common missteps that can derail your path to wealth. We’ll break each one down and what you can do to avoid these mistakes when investing.
Staying on the Sidelines Because of Uncertainty
Fidelity argued that many investors “avoid investment decisions due to uncertainty,” waiting for a “perfect moment” to jump in.
The truth is, there’s no perfect moment in time to start investing. And even if you’re not 100% sure what the market will do tomorrow, the market won’t wait for you to decide. When your cash sits idle earning next-to-nothing, you’re losing purchasing power to inflation. Meanwhile, stocks may quietly rally without you.
Instead, just focus on dollar-cost averaging into the market. This means investing fixed amounts on a schedule (every payday), no matter what the market is doing. That way you avoid timing the market and force yourself to stay in the game.
Always Expecting the ‘Next Shoe To Drop’
Investors often fear a looming crash or recession and hold back. Fidelity said alarming news stories may cause investors to expect negative outcomes.
Similar to mistake No. 1, having an overall negative outlook will cripple your investments because instead of investing, you become paralyzed. And all the while the market marches upward over long periods of time.
It is important to “zoom out” when you’re investing, look at long-term market returns and build a plan that assumes volatility. Choose an investment strategy that you can stick with — no matter what the market is doing — and you’ll start seeing market drops as opportunities, not crises.
Waiting for ‘Cheaper Valuations’
Holding off on additional investments until valuations drop is a common trap, according to Fidelity. But the problem is, you may never see the “ideal” valuation if stocks keep rising. And waiting for a “better value” in the market might lead you to completely miss an investing opportunity altogether.
Yes, understanding a stock’s price-to-earnings ratio (P/E ratio) is important to knowing the valuation of a stock, but it should not stop you from investing. You can tilt toward undervalued sectors or geographies, but don’t freeze allocations entirely. And always maintain diversification: don’t bet the farm on timing.
Holding Too Much in CDs or Short-Term Instruments
Yes, safe investments are tempting, especially when interest rates are higher than they have been in decades. But Fidelity warned that over-reliance on CDs and ultra-short-term stuff often limits long-term growth.
The big problem is inflation. With high-yield savings accounts, bonds and other cash equivalents, these investments often can’t beat inflation over long time frames and you actually lose money in real terms. For long-term investors, it’s better to maintain a core stock or equity allocation in your portfolio to potentially beat inflation and grow your wealth.
Trying To Predict the Future
Wall Street loves opinions, but Fidelity said the future rarely turns out exactly as people expect.
The truth is, average investors don’t beat the market a majority of the time and buying and selling investments rarely outperforms just staying put.
When you chase narratives, flip positions or trade on gut, it leads to late entries, early exits and giving up profit along the way. Instead, choose a strategic asset allocation based on your goals, stick to it, no matter what the market is doing. Statistically, you’ll outperform day trading 99 times out of 100.
Ignoring Taxes
Taxes can be sneaky, but can also hurt your investment returns. Fidelity said many investors overlook the impact of taxes when making investment decisions, especially in taxable accounts (another reason day trading can hurt you).
Most investors that don’t do any tax planning generate unnecessary capital gains, distribute dividends inefficiently or miss tax-loss harvest opportunities to lower your tax bill. Plus investors that just use an app like Robinhood to trade stocks don’t do so inside a tax-advantaged account and can end up with a surprise tax bill at the end of the year.
To fix this, you need to be tax-aware when investing. Use tax-advantaged accounts when possible (401(k), IRA, HSA). In taxable accounts, favor tax-efficient investments (like ETFs and index funds). And look into selling your losers to have the losses offset any gains for the year.
Letting ‘the Perfect’ Be the Enemy of the Good
Fidelity warned that analysis paralysis and chasing perfection can lead you to inaction.If you never commit to an investing strategy or actually set up your investment accounts, you’ll never allow your money to compound.
Instead of waiting to craft the perfect investment plan, just start. Start small and get comfortable investing small amounts at first. And use guidelines for asset allocation (such as 60/40, 80/20, etcetera) and then fine-tune over time. Perfect won’t make you an investor, getting started will.
More From GOBankingRates
