6 common investing mistakes that can cost you millions

Today's episode is all about the six most common investment mistakes that I see derailing you from your investment returns and your long term financial progress. These mistakes are so common. I see them time and time again. They're promoted by the media, your friends, your family, and generally. They often seem like the most exciting and fun way to invest.

But through this episode, I'm going to teach you some wealth building fundamentals that are tried and true. They're going to help you get ideally the best investment returns for yourself and make sure that you are building a secure financial future. You're going to learn a lot about investing in general from this episode.

Plus I'm going to share specific stories, stocks I've invested in and lessons that I have learned financially as well. So without further ado,  let's dive in and make you a better investor!

Key Highlights

[ 00:01:51] Mistake #1: Chasing the trends
[ 00:04:29] Mistake #2: Making emotional decisions
[00:07:29] Mistake #3: Failing to properly diversify
[00:12:31] Mistake #4: Trying to time the market
[00:14:27] Mistake #5: Ignoring investment costs
[00:17:34] Mistake #6: Neglecting the power of compounding interest

Notable Quotes

"The number one mistake is chasing the trends."
"Don't try to time the market. Don't try to use your time and energy that way because it can, like I said, it can only prevent you from getting more exposure to the market."
"The earlier you begin saving and investing, the more compounding interest works in your advantage."
"Start now, start early, invest often, invest as much as you can, even if it's not a lot of money, continuously putting in money in the market year over year will help you start to really play this compound interest game."
"Maintain diversification in your investment portfolio."
"Making emotional decisions when the market is down is the number one mistake that I have seen people make in their investment portfolios."
"Neglecting the power of compounding interest is a huge mistake. Compounding interest is what Albert Einstein claims is the eighth wonder of the world."

Resources

Listen on Apple Podcast
Start your “No Budget” Money Plan
Learn more about our signature Program: Holistic Money Program
Connect with Whitney:
LinkedIn: LinkedIn 
Instagram: @holisticmoney  
Email: Info@holistic-money.com

Apply here to be featured on the "Behind Closed Wallets" Series of the Holistic Money Podcast

Listen on Apple Podcast

Start your “No Budget” Money Plan

Learn more about our signature Program: Holistic Money Program

Connect with Whitney:

LinkedIn: LinkedIn

Instagram: @holisticmoney

Email: Info@holistic-money.com

Transcript

0:01

Hello and welcome to the Holistic Money Podcast. I'm your host, certified financial planner and money mindset coach, Whitney Morrison. Over the past seven years, I've taken myself from credit card debt and no savings to a seven figure net worth. I did this without a budget or a restrictive money plan, but instead smart, sustainable wealth building strategies combined with changing my relationship with money. In this podcast, you'll learn the ins and outs of my no budget philosophy, practical wealth building strategies, and key mindset shifts to make it happen. There is no shortage of information out there to tell you what to do with money, but teaching you how to think and feel about money, that's my secret sauce. If you've been waiting for a podcast that gives you actionable strategies to not only build wealth, but also feel really good while you're doing it, then you're in the right place. Let's get started. Today's episode is all about the six most common investment mistakes that I see derailing you from your investment returns and your long term financial progress. These mistakes are so common. I see them time and time again. They're promoted by the media, your friends, your family, and generally. They often seem like the most exciting and fun way to invest. But through this episode, I'm going to teach you some wealth building fundamentals that are tried and true. They're going to help you get ideally the best investment returns for yourself and make sure that you are building a secure financial. You're going to learn a lot about investing in general from this episode. Plus I'm going to share specific stories, stocks I've invested in and lessons that I have learned financially as well. So without further ado, let's dive in and make you a better investor. the number one mistake is chasing the trends. A lot of you have probably heard people talking about a stock that's taking off or a company that's doing really well, or an IPO that's gone through the roof or crypto is starting to rise really rapidly. It's time to get in. I have seen a lot of people make financial decisions and end up buying stocks or crypto or whatever, based on a momentary trend that is happening in the market. And what inevitably happens is the trend doesn't last forever. Oftentimes it's not a sustainable long term financial buy or financial decision that is good for you and your long term financial health. I remember when Beyond Meat they IPO'd and it was one of the first plant based Meat companies that a lot of people were really excited about the actual taste of the meat. And I remember that they had signed a deal with Burger King as well. And so there was a lot of hype around buying beyond meat and everyone that was in my circle was talking about this stock and I ended up going in and buying a lot of beyond me, and within months, the stock plateaued and ended up dropping significantly. And I remember learning a pretty big lesson about this. And I learn it every day too, when I am working with my clients, because I often will look into their stock portfolios and I'll, we'll look at the individual companies that they're buying and a lot of their purchase decisions are coming from trends. And we'll start to look at the performance of the stock today. Relative to when it was a really hot stock as a trend. And we'll often notice that the stock has decrease in price in general, or decreased momentum or completely faded out of the trend. One thing I want all of you to know about the market is that it's an incredibly emotional. Place and a lot of performance, especially short term performance in the stock market is driven by emotions. So just be very wary on putting all of your money on that trendy stock and instead focus on your long term. Investment objectives. And for most of you, unless you are an active investor, your long term investment objective is just to get a seven to 9% return in the stock market and have your money grow so that you can prepare for either retirement or some kind of mid or long term goal that you have. mistake number two that I see. Is making emotional decisions. This actually may be one of the most important lessons that all of you can learn as it relates to investing. When I started my career as a financial planner, it was in 2008 drop dead middle of the financial crisis, started working at Wells Fargo advisors. And I started fielding calls of our clients who were freaking out about the performance of their investments. A lot of them called, a lot of them sold huge portions of their investment portfolios. Some of them liquidated their entire retirements. I'm talking millions of dollars in invested assets. And locking in a pretty significant loss on their investments due to the fact that they were afraid about what was happening with the economy. A lot of people also did this during COVID, took their money out of the market, and ended up losing a lot of money when the market was down in COVID. the rhetoric I hear that surrounds this financial decision is really driven by this idea that we're in unprecedented times. I heard this a lot during COVID, COVID. I heard this a lot in the 2008 financial crisis. We're in unprecedented times. The economy has never seen anything like this. Is this something that we're really going to be able to recover from? And what do we all need to do right now to protect our money, to make sure that we are not? Washed away in this terrible financial storm that as an economy we've never experienced before and have no idea the way out. I think this is really interesting rhetoric because it's repeated every single downturn that we have in the market, and it sounds so true. In the moment when you hear it, but what you have to do in those moments of economic volatility, when the market is down is you have to really check your emotions because when you make emotional decisions, when the market is down, it is the number one mistake that I have seen people make in their investment portfolios and can be. Hugely detrimental to your financial future. I'm working with a client right now. She ended up selling off like a hundred grand of her invested portfolio during COVID because she was very afraid about what was happening in the economy. And since then the market has been on an upswing and she lost out not only on a lot of growth from that upswing that the market ended up inevitably. Experiencing, but she also locked in a loss. Whenever you're invested in the stock market, your portfolio may go up, your portfolio may go down, but you don't actually realize any of those losses or gains until you actually sell. So making emotional decisions about selling and when you're going to sell, especially during a downturn is incredibly. Risky and can be very detrimental to your long term financial health. Mistake number three that I often see is failing to properly. Diversify. What this means is it's always wise to maintain diversification in your investment portfolio. I know a lot of my clients really like to invest in the S and P 500 index. Essentially what that is, is that's the top 500 companies in terms of market share that are trading on the stock market. So they tend to be, you know, companies like Apple, Tesla, Johnson and Johnson, McDonald's,, some of these really big, large corporations that have been Walmart target that have been trading on the stock market for a very long time and because these are such well established companies, they end up experiencing pretty consistent returns over time. And so a lot of people really like to exclusively invest in the S& P 500. But the issue is that when you are over invested in one kind of asset class, or one particular kind of stock, or one investment objective, you are missing out on the performance of other sectors of the economy. And I think it's really important to understand that A diversified portfolio is not just reliant on one specific sector of the economy. And I wanted to show you this this chart here. Now this chart may look a little bit overwhelming, but essentially what it's doing is it's showing you on this top line here. The top performing asset classes year over year. So if we look at 2010, the top performing asset class was REITs, real estate investment trust at 26. 6% return. If we look at the very. Bottom here, the lowest performing asset class, this is treasury bills, T bills with a negative 1. 5% return. And you can see year over year as we start to look at the top performing asset class versus the bottom, the lowest performing asset class. There, there's quite a large variability between The winners and the losers or the high performing asset classes and the low performing asset classes. if you're investing in the S and P 500. You're investing in us large cap stocks, which really over the past 10 years has only been the top performing asset class in one year out of the last 10 years. So you can see that different years, different asset classes perform better than others. And perform worse than others, right? This is why you want to have exposure to multiple asset classes, because number one, predicting how the economy is going to perform for the year is pretty much impossible. There are some asset managers that do have a pretty good track record at choosing the winners. What they believe the economy is going to do, but I just want to give you a little point of reference that having a good track record as it relates to choosing the winners is being right. Only 40% of the time that is like an incredible track record for an investment manager. So you can, as you start to really think about The strategy of investing. I really feel like this chart shows the importance of having diversification of all different asset classes so that you can get exposure to international stocks, for example. When that's doing really well. And you also have exposure to large cap stocks when that's doing well, instead of just focusing on one company or focusing on one sector of the economy, those of you have like an employee stock purchase plan or your company gives you stock. That's another way that I can see my clients be over concentrated in one particular company. Like I know Amazon employees, they tend to have a lot of Amazon. Stock and which is great when am Amazon is doing well, but it's not so great when Amazon gets a really shitty press release and they talk about not treating their employees fairly and the stock goes down. You just never know what's going to happen with one single company that can really affects the return of that stock. So having too much concentrated in one single stock, even if it's where you work is something you really want to be mindful of for your investment strategy. One thing I like to do with my clients is make sure that they're selling off their employee stock over time in small increments so that they can take that money and diversify it across several companies instead of just one. Mistake number four that I see is trying to time the market. This is. Really a culmination of the previous four mistakes that I've mentioned because trying to time the market tends to be an emotional decision. It tends to be what you think is going to happen given what's going to happen in the economy. And a lot of that can be influenced by trends that you think you're seeing, but. What is so much more important than timing the market is time in the market. And what I mean by timing the market is trying to buy when the market is down and trying to sell when the market is high. The thing is, is that you never know the peak or the trough of the market. So you may think that you're selling at an all time market high and you sell on a Tuesday, but then on Friday, the stock market could take off and go on another significant run and really you've just sold your portfolio right before the market took off on a run or you can try to buy in when the market is low. And you end up buying in on a Tuesday and then on the next Thursday the market has a significant drop and you end up buying in in the market when the prices were actually much higher than if you had waited one or two days. So trying to time the market to get in is a very risky game. And it is something that can lead to a lot of missed opportunities and significant loss. So what I like to tell my clients is don't try to time the market. Don't try to use your time and energy that way. Cause it can, like I said, it can only prevent you from getting more exposure to the market. What is more important is time in the market. You want to get in as soon as possible and you want to stay in as long as possible. Mistake number five is ignoring investment cost. So when we are investing in mutual funds or index funds or any kind of fun, There tends to be cost associated with that. And depending upon whether or not you're invested in what's called an actively managed fund versus a passively managed fund can influence the costs that you're actually paying. So an actively managed fund is a mutual fund or any kind of fund that's ran by a mutual. Fund manager and a fund manager. What they do is they have a team of investment analysts and their goal is to choose who they consider to be the winners of the stock market. And sometimes they're right. And sometimes they're wrong. Sometimes they have an amazing five year performance. Sometimes they end up choosing the companies that don't do well, and they lose a lot of money. Passively managed funds. They actually don't have an investment manager. So you don't have to actually pay anyone to be choosing the winners or losers. They just have an investment philosophy that, Hey, we just want to own a little bit of everything because the market is efficient. And what I mean by the market is efficient is regardless of if you're trying to choose the winners of the losers of a bunch, their beliefs are that. Trying to choose the winners and losers is over the long run going to reduce your return than just saying, I believe that the way that our economy is naturally expanding and contracting is the most profitable way to invest in the stock market over the long run. And so instead of trying to choose. Who wins and loses and being right. Sometimes being wrong. Sometimes I'm just going to ride the natural waves of the market, and that's going to end up getting me the best return. There's a lot of research over these two philosophies and ways of investing. And what we do find is that over the long run. Passive investing actually does create a higher return simply because of the fees that you have to pay to these investment managers that are running these actively managed funds and the fact that they're not always right a hundred percent of the time. And they often have bad years, just like the, the stock market as a whole has bad years. So ignoring the cost of the investments that you are actually investing in can be a really, really costly investment mistake, because even if you're paying to be in a mutual fund that has a one to 2% expense ratio, which is the fee, the main fee that these. Funds have you're really losing 1 to 2% of return on the fee that you're actually paying into this fund. And over the long run that can compound into hundreds. Of thousands of dollars, if not millions of dollars, depending on your specific financial situation. The number six mistake that a lot of people make in their investing is to neglect the power of compounding. Compounding interest is what Albert Einstein claims is the eighth wonder of the world. It is a powerful force that significantly increases your investment returns over time. The earlier. You begin saving and investing the more compounding interest works in your advantage. You want to make sure that you are always reinvesting your dividends and maintaining a long term approach to your investment portfolio to maximize your compounding potential. So if you all have cash sitting in your investment accounts, this is. A gentle, maybe forceful nudge to go in and invest that money. Because like I said, in one of the previous points, time in the market is the most precious resource that you have in terms of generating investment returns simply because of compounding interest. So let's look at a real life example. I want you to look at, we'll say Gina. Gina is 25. Okay. And she is contributing 6, 000 a year to her retirement account. And she earns a 7% return and her total investment portfolio projected until she's 67 is 1. 48 million. Her friend, Robin, she gets started at age 30, only five years later, she does the exact same thing. She puts in 6, 000 a year. And she earns a 7% return and she also invests until she's age 67 and her total projected investment portfolio is 1. 03 million at age 67. So you can see the decision to start even five years later. Just investing 6, 000 a year cost her half a million dollars. The total investment that the first woman put in was 252, 000. Cause she started at age 25. The second woman, she did 222, 000 because she contributed 6, 000 every single year. Five years later, and the difference, the difference in their contributions is 30, 000. The difference in their investment portfolios at the end of their timeline at age 67, their retirement age is half a million dollars. So that is the power of compounding interest. That's the power of starting to invest early and often so that you make sure that you're always, always, always taking advantage of your investment returns and your investment potential and the time in the market. So that's one of the biggest pieces of advice is to start now. Start early, invest often, invest as much as you can, even if it's not a lot of money to continuously putting money in the market year over year will help you start to really play this compound interest game. So that is all that I have for you today. In terms of the six mistakes, I'm going to recap them really quick. Number one, chasing the trends. Number two, making emotional decisions. Number three, failing to properly diversify. Number four, trying to time the market. Number five, ignoring investment costs and number six, neglecting the power of compounding interest. So those are the six. Mistakes that I traditionally see as it relates to investing. All right. That is all that I have for you today. If you found this episode useful, or you think it could help someone else, please send it to a friend or leave me a review as a small business owner, getting reviews. Number one is so encouraging, especially if they're positive and number two, it really helps other people find my podcast and find my work. So I would love if you took the time to do that, if you enjoy this episode, I also wanted to let you know that I will be leaving on maternity leave. My baby is growing in my belly. He is about. Six seven weeks until he's do, but I am still taking a few one-on-one clients between now and my delivery date. So if that's something that you're interested in, make sure to book a consult with me, you can find the link to book a consult in the show notes or on my Instagram or on my website. I work with people specifically to help them change their relationship with money and finally build wealth. I take a three-dimensional approach, making sure that it's not just the standard old financial advice. I take that holistic approach, which focuses on inner wealth. Your relationship with money, outer wealth, all of your systems. And higher wealth, really making sure that you were connecting your money with your purpose and your higher values. All right y'all have a great week and i will see you in the next episode

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