10 biggest mistakes investors are making now, according to financial pros

Investing your hard-earned money carries risk — but having an established framework and approach is key to reducing that risk, pros say.

“Whether you are working with a qualified adviser or if you are a DIY’er, you should always follow a set of rules and guidelines for how you deploy your financial resources,” says John Foard, certified financial planner and co-founder at Crown Advisors. “This is why we are adamant about using an IPS [investment policy statement] to help guide decisions and recommendations for our clients.”

We asked 10 industry experts what common mistakes they see investors make, from disregarding the need to rebalance portfolios to the high price of emotional decision-making. If you’re seeking help for your portfolio, you can find a financial adviser at NAPFA, CFP Board or by using this free tool that matches you to fiduciary advisers from our ad partner SmartAsset.

Making emotional decisions, says Stephen Vecchione, CEO and managing partner at Statera Advisors.

“The most common mistake we are seeing now and quite frankly we most frequently see, is clients making emotional decisions. People tend to buy when it feels good and sell when it feels bad. With constant headlines, there is often something that can make you nervous.

We find the best way to counteract emotional investing is to have a financial plan. Financial plans help keep goals, timing and risk in perspective allowing clients to understand the purpose of their investments thereby helping remove emotions from the decision-making process.”

Trying to time the market, says Robert R. Johnson, CFA and professor of finance at Heider College of Business, Creighton University.

“The biggest mistake investors are making right now is believing that they can time the markets. Many investors mistakenly believe that success in investing involves getting in before market advances and getting out before market declines. Nothing could be further from the truth. This problem is exacerbated by the 24/7 financial news networks that have talking heads making market predictions. The ‘secret’ to long-term success in the markets is not about getting in and out, but staying investing over the long run.”

‘Investing in private equity and private credit,’ says Stephen Callahan, trading behavior specialist at Firstrade.

“The biggest mistake investors are making right now is investing in private equity and private credit. A lot of people are trying to get retail investors into private markets, but these are extremely risky assets even for sophisticated investors. These are small companies that are at higher risk of bankruptcy. They are illiquid assets, which means that it’s not easy to cash out of these investments. Their valuations are hard to confirm because you don’t have the price discovery you see in public markets, so many of these valuations are inflated. Also, many of the private equity companies are highly leveraged, adding another level of risk. And, the fees are pretty high compared to other investments.

Private credit has many of the same risks as private equity. These are illiquid investments with high fees and uncertain valuations. There is also very little transparency as borrowers aren’t required to provide regular public updates making it hard to spot trouble early and making it easier for debt sellers to disguise borrower distress. They also have a higher risk of declaring bankruptcy as seen in the recent private credit blowups.”

Chasing hype investments and overconcentration in a specific holding, says John Foard, CFP and co-founder at Crown Advisors, LLC.

“The No. 1 mistake we see people making centers around performance chasing and hype investing. Many times, investments are made with total disregard to their long-term plan, risk tolerance and specifically the fundamentals of how the investment fits into their specific and proper retirement strategy. This can derail an investment and retirement income plan very quickly.

Additional mistakes happen where we see overconcentration of a specific holding. Depending on tax qualification of the account you are holding the investment, it’s not a bad thing to trim your holdings and take profits to maintain proper alignment in your portfolio. It’s also not a bad thing to remove a holding altogether if it no longer fits within a proper allocation strategy based on your goals and objectives. Again, don’t allow emotions to drive your decisions.”

App-based investments, says Stephen Day, author of Teach a Kid to Save and director at Virginia Commonwealth University’s Center for Economic Education.

“The rise of app-based and self-directed trading has turned millions of young adults into investors. They need investing advice, too. New, young investors can easily buy into the quasi-gambling feeling of investing apps.

Young investors should realize that the amount they save is more important than the market returns that they get. Investors should focus on living within their means and saving consistently. They should devote only a minority of their savings to app-based investments.”

‘Equating motion with strategy,’ says Joe Braier, president and CEO of Lake Country Advisors.

“The greatest fallacy is equating motion with strategy. Most investors are overtrading in and out of industries on the basis of headlines or artificial intelligence-driven information that does not have context. They confuse the idea of activity and adaptability chasing the trends without basing them in the fundamentals. Long-term returns cannot be accumulated on a constant basis; they are accumulated on the basis of timing discipline.”

Being too focused on losing money, says Tom Mathews, certified financial educator, author of How Money Works and founder WealthWave.

“Many potential investors are too focused on the downside of losing money, even though the odds of long-term growth of the market have been proven time and again. They are terrified of even those small losses, which can be too much to handle or make them feel as if they failed. Sadly, doing nothing feels emotionally safer.

Many people avoid investing because they don’t fully understand how money works and how markets work and they are afraid of making a wrong move. When money feels confusing, paralysis feels safer than taking action. The reality is that investing requires patience, but we are wired to prioritize immediate certainty over future rewards. Keeping money in cash feels controllable and predictable, even if it means that money won’t grow in time.”

‘Blindly buying index funds,’ says Asher Rogovy, chief investment officer at Magnifina.

“Perhaps the biggest mistake I see is blindly buying index funds. Indeed for the past 15 years, broad market returns have been steady and lucrative. But I wonder how the next 15 years will fare. Current market valuations are at historic highs, which sets the stage for losses when volatility picks up. Also, index funds are usually seen as very diversified, but over the past few years, they’ve become top heavy. Just 10 companies represent roughly 40% of the S&P 500. I suspect that quite a lot of investors are unaware of this index concentration risk.

It’s a double whammy. Large shares of portfolios are concentrated into fewer stocks, which trade at very risky valuations. Yet so many retail investors and professional advisers alike continue to choose index funds for equity exposure. I find this situation so bizarre. It’s like no one even cares about the details of the companies in which they invest.”

Forgetting to rebalance and not taking advantage of tax-optimization strategies, says Alex Michalka, VP of investment research at Wealthfront.

“Investors that aren’t rebalancing their portfolio could be drifting way off course, which means they are unintentionally taking on more risk. Many investors think they have a well-diversified portfolio when, in reality, they don’t. Having a portfolio diversified across industries, asset classes, and geographies is one of the best ways to safeguard your finances. For instance, if your portfolio is heavily concentrated in U.S. equities, adding exposure to global markets can be a smart way to build long-term resilience.

If you’re investing but not thinking about how to keep more of your gains when tax time rolls around, this is a great area to focus on. One way to help lower your tax bill is to invest in index-based ETFs that let you track a broad market index with one investment. They are inherently tax-efficient because they pass on very few earnings, or ‘taxable gains,’ to investors who own the ETF, even when the value of the ETF is increasing. Long-term investing is also more tax-efficient than short-term investing. That’s because your investments are taxed at a much lower rate if you hold them for at least a year and a day, meaning you get to keep more of what you earn. Another smart strategy to take advantage of to help lower your bill is tax-loss harvesting, which allows you to offset taxable gains with investment losses.”

‘Retail investors entrusting their money to memes,’ says Max Gokhman, deputy chief investment officer at Franklin Templeton Investment Solutions.

“The biggest mistake I’ve seen since the pandemic, and in the rapid ascent and brutal drawdown of silver prices last month, is retail investors entrusting their money to memes. Similarly, influencers might help you find the best skincare regiment, but following their trading advice can leave you burned worse than going out without sunscreen.”