5 Investing Mistakes You May Be Making Right Now—and How to Avoid Them

Investing isn’t just about choosing the right stocks or timing the market perfectly. Instead, it’s a long journey that requires careful planning, patience, and a solid understanding of certain fundamental principles. However, even seasoned investors can sometimes fall into traps that hinder their ability to reach their financial goals. Here are five common investing mistakes you may be making—and some tips on how to avoid them.

1. Getting Out When the Going Gets Tough

One of the biggest pitfalls investors face is the temptation to pull out of the market when it hits a rough patch. It’s natural to want to cut losses and wait for calmer waters. However, doing so can actually undermine the long-term growth potential of your portfolio.

Matt Bullard, a regional vice president for managed solutions at Fidelity, emphasizes that emotional responses to market events often do more harm than good. While major market drops may drive alarming headlines, history has shown that these declines tend to be relatively short-lived compared to growth periods. For instance, since 1950, the market has experienced an average annual increase of 15% during expansionary periods—even rising 1% per year on average during recessions.

Moreover, when you pull out during a downturn, you might miss out on the market’s best days, which often occur during the recovery phase. Missing just a handful of these top-performing days can drastically reduce your overall returns. A hypothetical investor who missed only the five best days in the market since 1988 could see their long-term gains reduced by a staggering 37%. This is why having a well-thought-out investment plan in place is critical—it helps you stay disciplined and resist the urge to react impulsively to short-term volatility.

2. Taking On Too Much (or Too Little) Risk

Finding the right level of risk can be challenging but essential. Too much risk can make your portfolio vulnerable to major swings, which may tempt you to withdraw during downturns. Conversely, being overly conservative can also be problematic, as you may miss out on the growth needed to outpace inflation and reach your goals.

To achieve a balanced approach, consider building a diversified portfolio with a mix of asset classes. Diversification helps manage risk because different assets react differently to market conditions. For instance, when stocks experience volatility, bonds or alternative assets may perform differently, helping to stabilize your portfolio.

Asset allocation—the way you distribute your investments across different asset classes—is also a powerful tool for controlling risk. Research suggests that as much as 90% of a portfolio’s long-term performance can be attributed to its asset allocation rather than individual stock-picking or timing decisions. By carefully calibrating the level of risk in your portfolio, you can help ensure you’re positioned to achieve your financial goals without taking on more volatility than you’re comfortable with.

3. Not Rebalancing Your Portfolio Regularly

Investing isn’t a “set it and forget it” endeavor. Over time, the values of different assets in your portfolio can change, causing your asset allocation to drift from its initial target. This drift may leave you with a riskier or more conservative portfolio than you intended.

Imagine you start with a portfolio allocated 70% to stocks and 30% to bonds. If stocks appreciate significantly over six months, you could end up with an 80/20 allocation, which exposes you to higher risk than you initially planned. Similarly, a decline in stock values could lead to a more conservative allocation than you intended.

Regular rebalancing is essential to maintain your target asset allocation and ensure you’re taking on the right level of risk. You can rebalance by either moving funds between asset classes or adding new funds to underweight areas of your portfolio. While rebalancing requires some effort, it’s worth the time to ensure that your portfolio stays aligned with your long-term objectives.

4. Paying Too Much in Taxes

Taxes are unavoidable, but there are ways to minimize the impact they have on your portfolio’s growth. Many investors inadvertently pay more than necessary in taxes, often because they’re unaware of strategies that can help reduce their tax burden.

One effective technique is tax-loss harvesting, which involves selling investments that have declined in value to offset gains elsewhere in your portfolio. This can help lower your tax bill and allows you to reinvest those savings to fuel future growth. Additionally, using tax-efficient asset location strategies—placing tax-inefficient assets in tax-deferred or tax-exempt accounts—can also help you reduce your overall tax burden.

For example, placing high-dividend stocks or taxable bonds in a retirement account could lower your taxable income, while holding tax-efficient assets like municipal bonds in a regular brokerage account can help minimize taxable distributions. Fidelity data suggests that investors with tax-smart strategies could save an average of $4,137 per year, potentially adding significant long-term value to their portfolios.

5. Going It Alone

Managing your investments on your own can be empowering, but it’s also challenging—especially when markets are turbulent. Even with knowledge and experience, it can be hard to avoid emotional decisions that derail your plan. A professional financial advisor can help you stay on track, providing both technical expertise and emotional support to help you weather the inevitable ups and downs of investing.

The value of professional guidance goes beyond just helping you avoid costly mistakes. Studies indicate that advice from a financial professional can potentially add as much as 5.1% to portfolio returns over the long term. This benefit comes not only from expertise in tax planning, asset allocation, and portfolio management, but also from the discipline advisors bring to the table. An advisor helps you stay committed to your plan, even when your instincts may be telling you to do the opposite.

Matt Bullard advises investors to consider three key questions: Do you have the skills to manage your investments effectively? Do you have the time? And, perhaps most importantly, do you want to handle this responsibility alone? If the answer to any of these questions is “no,” working with a professional may be the right choice for you. Even if you prefer a hands-on approach, periodic consultations with an advisor can provide valuable insights and help fine-tune your strategy.

Final Thoughts: Don’t Overcomplicate Things

Investing can be complex, but it doesn’t have to be overwhelming. Avoiding these five common mistakes can help keep you on the right track toward your financial goals. Start by creating a long-term investment plan and sticking to it, adjusting your portfolio’s risk level to match your comfort and rebalancing regularly. Stay mindful of tax implications to maximize your portfolio’s growth, and don’t hesitate to reach out for professional help if you need it.

With a disciplined approach and the right guidance, you can sidestep these investing pitfalls and make the most of the opportunities the market offers. Investing wisely isn’t just about avoiding losses; it’s about growing your wealth, reaching your goals, and securing your financial future.