CFA Institute: 20 Common Investing Mistakes That Could Crush Your Portfolio
Investing is one of the best ways to build wealth, but that doesn’t mean it’s easy. The market doesn’t care about emotions, hype, or shortcuts, and bad habits can do serious damage to your financial future.
I analyzed the most common investing mistakes according to the CFA Institute, with data expanded by Visual Capitalist. Many of these mistakes come down to mindset, poor planning, or a lack of understanding about how markets really work.
And oh, I’m not just some guy with opinions on investing. I’m a Chartered Financial Analyst (CFA) with over two decades in Financial Services. I spent 21 years at two of the larger Financial Services companies, building investment tools, programs, and platforms.
So I know what works, and what doesn’t, when it comes to successful investing.
This article breaks down the biggest mistakes investors make and how to avoid them. You’ll get real, practical advice to protect your money, improve your strategy, and set yourself up for long-term success.
If you want to avoid the mistakes that cost investors millions, keep reading.
Table of Contents
Expecting Too Much
A common mistake investors make is expecting unrealistically high returns. When people hear stories of 30% or 40% gains, they assume those results are normal, which leads to bad decisions and unnecessary risks.
The reality? The average investor expects annual returns of around 15.6%, but financial professionals set that expectation much lower at 7.0%. If you’re chasing unrealistic gains, you’re likely taking on too much risk or jumping into speculative investments that could wipe out your portfolio.
A well-diversified, long-term portfolio typically grows at a slower, steadier pace, but it compounds over time, which is how real wealth is built. The key is to set reasonable expectations and stay patient, because patience is what pays off in investing.
No Investment Goals
Investing without clear goals is like setting off on a road trip without a destination. If you’re just buying stocks based on hot tips or the latest trends, you’re setting yourself up for trouble.
In fact, 59% of investors say long-term growth is their top goal, yet many still focus on short-term market movements instead. Defining clear, measurable objectives like saving for retirement, a home, or financial independence helps keep your strategy on track.
Without clear goals, it’s easy to panic during downturns or make emotional decisions. A solid investment plan should always be built around long-term objectives, not short-term noise.
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Not Diversifying
Putting all your money into a single stock or sector is one of the riskiest things you can do. Historically, only 21.4% of U.S. stocks have managed to outperform the market over a 20-year period, meaning the odds are against you if you’re betting on individual stocks.
A well-diversified portfolio spreads risk across multiple investments, so if one company or sector takes a hit, it won’t drag down your entire net worth. Diversification reduces volatility and helps ensure that you’re not relying on just a handful of stocks to carry your portfolio.
The goal isn’t to hit home runs, it’s to avoid strikeouts that could wipe you out.
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Focusing on the Short Term
Short-term thinking leads to poor investment decisions, often causing investors to buy high and sell low. Many people obsess over daily stock price movements, but constantly checking your portfolio can lead to overtrading and emotional decision-making.
Investors with a short-term view end up paying over 50% more in transaction fees compared to those who stick with a long-term strategy. The market fluctuates daily, but history shows that staying invested for the long haul pays off.
Instead of reacting to every market dip, focus on the bigger picture and remember that true wealth-building happens over decades, not days.
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Buying High and Selling Low
It sounds obvious, buy low, sell high. Yet, when the market is soaring, people rush in, and when it crashes, they panic and sell. This behavior is why the average investor loses around 2.0% annually just from buying at peaks and selling at lows.
Market swings trigger emotional responses, leading to bad timing and losses. The key to avoiding this mistake is having a clear strategy in place before emotions take over. If you have a solid, long-term plan, there’s no need to react to every market dip.
Smart investors stay disciplined and take advantage of opportunities when others panic.
Trading Too Much
Frequent trading is a major portfolio killer. One study found that investors with the highest trading activity actually underperformed the market by 6.5% annually. The more you trade, the more you rack up transaction fees and taxes, eating into your returns.
On top of that, excessive trading usually means chasing trends or reacting emotionally, both of which rarely lead to good outcomes. Investing isn’t about constant action, it’s about making well-researched decisions and letting them play out over time.
Instead of trying to outguess the market, stick with a strategy that minimizes unnecessary trades and maximizes long-term gains.
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Paying Too Much in Fees
Fees might not seem like a big deal, but over time, they can eat away at your returns in a major way. The average expense ratio for ETFs and mutual funds in 2022 was 0.4%. but if you’re paying higher fees on actively managed funds or unnecessary services, that’s money coming straight out of your pocket.
High fees compound over the years, reducing your overall wealth significantly. Instead of blindly paying for expensive funds, look at low-cost index funds or ETFs, which have historically outperformed the majority of high-fee actively managed funds over the long term.
Keeping costs low is one of the easiest ways to boost your investment returns.
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Focusing Too Much on Taxes
Nobody likes paying taxes, but making investment decisions just to avoid them is a bad move. Tax-loss harvesting can be useful, but obsessing over tax implications instead of focusing on strong investments leads to missed opportunities.
Some investors hold onto underperforming assets just to delay taxes, which hurts long-term growth. A solid portfolio should prioritize quality investments first, then use tax strategies as a secondary consideration.
Returns drive wealth-building, not tax avoidance. Smart tax planning helps, but it should never dictate investment choices.
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Not Reviewing Regularly
Setting up a portfolio and forgetting about it sounds nice, but ignoring investments for years can be costly. Market conditions shift, personal financial goals change, and what worked years ago might not be the best choice today.
A quarterly or annual review helps ensure investments stay aligned with long-term plans. Rebalancing can prevent risk levels from creeping too high and keep the strategy on track.
Small adjustments over time lead to better results than letting things drift in the wrong direction.
Misunderstanding Risk
Risk is often misunderstood. Too much risk can wipe out wealth, but too little can mean missing out on the growth needed to reach financial goals. Some investors avoid stocks entirely, fearing volatility, while others chase the riskiest assets expecting outsized returns.
Neither approach works well. The right balance depends on time horizon, financial situation, and personal tolerance for ups and downs. A smart investor understands risk isn’t something to fear, it’s something to manage.
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Not Knowing Your Performance
Many investors have no idea how their portfolio is actually doing. Without tracking performance, it’s impossible to know if things are on course. Some assume their investments are doing well because the market is up, but individual returns may not reflect broader market gains.
Factoring in fees, inflation, and benchmark comparisons gives a clearer picture. A portfolio review shouldn’t just be about looking at numbers, it should confirm that everything is working toward the bigger financial picture.
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Reacting to the Media
Headlines are designed to grab attention, not provide solid investment advice. Panic-driven news stories make markets seem riskier than they are, pushing investors to make bad decisions.
Over the long run, 73% of the years since 1920 have had positive stock market returns. The market has survived crashes, recessions, wars, and political chaos. Letting media noise dictate investment moves leads to emotional reactions instead of logical decisions.
The best strategy is to tune out the noise and stick with a plan.
Forgetting About Inflation
Inflation quietly erodes purchasing power, making a dollar today worth less in the future. Ignoring inflation leads to underestimating how much money will be needed for retirement and other goals.
Historically, inflation has averaged around 4% annually. That means $100 today could be worth just $44 in 20 years if left sitting in cash. A portfolio should include assets that outpace inflation, like stocks and real estate, to ensure long-term financial security.
Keeping too much cash on the sidelines is one of the biggest wealth destroyers.
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Trying to Time the Market
Many believe they can predict market highs and lows, but the truth is, even professionals fail at this consistently. Staying invested beats trying to guess the perfect entry and exit points.
The market’s best days often come right after its worst days, and missing those rebounds can crush returns. A long-term approach, with consistent investing, works far better than making bets on short-term market movements.
Those who try to time the market usually end up missing the gains that drive long-term wealth.
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Not Doing Due Diligence
Blindly trusting investment advisors, financial influencers, or stock tips without research leads to costly mistakes. An advisor’s background should be checked through tools like BrokerCheck to ensure a solid track record.
Investments should be thoroughly understood before money is committed. Due diligence isn’t about overanalyzing every small detail, it’s about ensuring investments and advisors align with financial goals.
Trusting without verification has cost investors millions.
Working with the Wrong Advisor
Not all advisors have a client’s best interests at heart. Some push high-fee products because they earn commissions, not because they’re the best option. Taking time to find an advisor who aligns with financial goals is crucial.
A good advisor provides guidance that focuses on long-term success, not short-term sales. The right fit makes all the difference in growing and protecting wealth.
Relying on the wrong person can be one of the most expensive mistakes an investor makes.
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Investing with Emotions
Fear and greed drive some of the worst financial decisions. Market drops trigger panic selling, while surging stocks lure investors into buying at inflated prices. This behavior leads to average losses of around 3.0% annually.
The best investors remove emotion from the equation, sticking to their plan no matter what headlines or market swings suggest. Having a disciplined strategy helps avoid making costly, emotionally-driven mistakes.
Chasing Yield
High-yield investments sound great, but they often carry serious risks. Bonds with higher yields usually have a reason for those elevated returns, like financial instability or the risk of default.
Stocks with massive dividend payouts can sometimes be struggling companies trying to keep investors happy. Instead of blindly chasing yield, a balanced approach ensures risk and return are in line with financial goals.
Long-term success comes from steady, sustainable growth, not reaching for quick wins that may not last.
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Neglecting to Start
Delaying investing is one of the biggest mistakes anyone can make. Two people investing $200 a month with a 7% annual return end up with vastly different outcomes depending on when they start.
Someone who begins at age 25 could have over $520,000 at retirement, while someone who waits until 35 might only have $245,000. The earlier the start, the better the compounding effect.
Time in the market is far more valuable than trying to find the perfect moment to begin.
Not Controlling What You Can
The market is unpredictable, but smart investors focus on what’s within their control. Consistent contributions, low fees, and a solid strategy have a far greater impact on long-term wealth than short-term market swings.
Investing $15 a day for 50 years with average returns could grow into over $1.2 million. Small, steady efforts create massive results over time. Those who focus on disciplined habits instead of trying to predict market moves end up winning in the long run.
Invest Smarter, Avoid Costly Mistakes
Most investors don’t fail because they pick the wrong stocks, they fail because they make avoidable mistakes. Chasing hype, panicking during downturns, or paying too much in fees can quietly drain wealth over time.
Smart investing isn’t about being perfect, it’s about avoiding the pitfalls that wreck returns. Stick to a solid plan, stay patient, and focus on what actually builds wealth.
The best investors don’t just make good moves, they avoid the bad ones.
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