Although I’ve been investing for well over a decade at this point, there was a time when I was new to the process — and not so well-versed on how to best put my money to work. As such, early on, I hit a few stumbles. And even recently, I fell victim to a common mistake that so many investors get hurt by. So now, I’m sharing my biggest mistakes in the hopes that others won’t follow suit.
1. Playing it too safe
I didn’t really start buying stocks until I was almost 30. Earlier on in my 20s, I kept most of my money in cash to serve as my emergency fund. I don’t regret that. But what I do regret is investing heavily in bonds at an age when I was able to take on more risk.
Thankfully, I came to my senses and realized that despite the risks involved, stocks were a better choice. But I lost out on several years of stronger growth in my portfolio by investing too conservatively. I also realized that by avoiding stocks due to my fear of taking losses, I was assuming another risk — that my money wouldn’t grow at a strong enough pace to make it possible to retire comfortably.
To be clear, if you’re nearing retirement, bonds may be a suitable investment, and you may want them to comprise a larger chunk of your portfolio. But if you’re decades away from retirement, stocks are the way to go.
2. Not diversifying enough
Years back, I was convinced that loading up on tech stocks was the way to go. But recently, I realized the hard way that my portfolio was too tech-heavy.
Tech stocks are down this year in a serious way, and as such, so is my portfolio. The good news is that I wasn’t egregiously overly invested in tech stocks — but in hindsight, I realize I was a little too heavily invested in that one sector.
Right now, I’m trying to avoid selling off stocks at a loss, and since I’m not planning to tap my portfolio soon, my hope is to ride out this downturn and then diversify. But I do need to move some money around when the opportunity presents itself.
Whether you’re new to investing or not, it’s important to regularly check up on your investment mix and make sure it’s diverse enough. And if it’s not, consider branching out into different sectors of the market or buying some broad market exchange-traded funds (ETFs) for instant diversification.
3. Trying to time the market
I’ve written before that timing the market just doesn’t work. But that doesn’t mean I haven’t tried it myself — and failed.
At this point, I don’t try to snag stocks at their absolute lowest price. Instead, I simply aim to buy shares of quality companies on a consistent basis.
While it’s natural to want to buy a stock at its lowest price, it’s hard to determine what that is. A better bet may be to use a strategy called dollar-cost averaging, where you commit to investing at regular intervals regardless of market conditions.
Don’t follow in my footsteps
We all make mistakes, and even though I write about financial matters, I’m certainly not immune to them. But I’m sharing these blunders in the hopes of steering other investors on a better path.
10 stocks we like better than Walmart
When our award-winning analyst team has an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now… and Walmart wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
Stock Advisor returns as of 2/14/21
The Motley Fool has a disclosure policy.