Stop Sabotaging Your Wealth: The 3 Biggest DIY Investing Mistakes

Are you managing your own investments—or thinking about it—but not sure if you’re doing it right? In this episode, Carla breaks down the three most common mistakes she sees high-earning DIY investors make that quietly sabotage long-term wealth growth.

Whether you love managing your portfolio yourself or you just ended up doing it by default, this episode will help you identify where things might be going off track and what to do about it.

You’ll learn:

• Why accumulating too much cash hurts your wealth and how to strike the right balance between liquidity and long-term growth
• Why piecemealing investments creates a messy, underperforming portfolio—and how to build a real investment “recipe” that aligns with your goals
• The danger of concentrated stock positions, especially in your employer’s stock or the tech sector, and how to reduce unnecessary risk

By the end, you’ll know whether:

1. You’re on the right track and can confidently continue self-managing,
2. You need to make a few strategic adjustments, or
3. It’s time to consider working with a financial advisor.

This episode is your roadmap to becoming a smarter, more intentional investor—so your hard-earned money actually grows into meaningful wealth.

Transcript

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In today's episode, we're going to talk about the three biggest, very common mistakes that I see when I look at portfolios that people are managing on their own. So this may be people that are managing their portfolios by themselves because it's something that they have consciously chosen to do and enjoy doing it. And it also may be people who are just by default in charge of their own investments because they've never taken the time or just never had the desire to hire an advisor. By the end of this episode, hopefully you have one of three possible takeaways. Number one, just a reassurance that you are overall doing a good job managing your investments and are going to continue to self-manage. Number two, maybe you realize, okay, you need to go back to the drawing board and make a few tweaks, and then you're going to continue managing your own investments. Or maybe number three, this is your aha moment where you realize it is time to hire a financial advisor. So let's get into it. Number one, the biggest mistake that I see with DIY investors is accumulating way too much cash. So as high earners start making more and more money, those bonuses are getting bigger and bigger. You've maxed out your 401k and you just don't know what else to do with the money, or maybe you just don't really have the time to figure it out because a lot of the people that I work with, they work really hard at their jobs. They maybe have kids, they have social lives, right? So you just kind of shove a bunch of cash into your bank savings account, making little to no interest, or even a high yield savings account where you're making higher interest, but not as much as you would by investing the money. And so you're just ending up with a lot of cash that is missing out on huge growth opportunity. And I have seen people with hundreds of thousands of dollars pilot piling up in their savings account. Now, this can also show up as cash accumulating in investment accounts. So maybe because you open an investment account, perhaps a brokerage account or a traditional or Roth IRA, or you do a 401k rollover into an IRA, and then you miss the piece of having to actually go in and invest the money because brokerage accounts, IRAs are very different than your 401k. With your 401k, the money is automatically getting invested when you make the contribution from your paycheck. With an investment account, you have to go in and buy the stock, mutual fund, ETF, or bond. Otherwise, the money is just sitting in cash. And I see people forgetting to take this next step and actually investing their money. Or sometimes you go in, you open the investment account and make the investments initially, and then you just kind of forget about it. So maybe dividends and interest are accumulating in cash in accounts like your IRA, that really should be for the long term. Now you do want to have some level of cash available to you in your bank account. You want to have an emergency fund, which is typically three to six months worth of living expenses in case you lose your job or some big unexpected expense comes up, maybe you need a new roof for your house, any type of cash flow emergency, you want to have money set aside to cover that. And for some people, if you have variable income, maybe because you're self-employed, or you just feel that you don't have very much job security, perhaps you want to have more cash than beyond that standard three to six months emergency fund that many of us advisors advise to have. But for the most part, you want your money invested and growing. Oh, and wait, I will add, you do also want to have enough cash set aside for short and midterm goals. So let's say you want to do a home renovation, you want to keep that money set aside in cash so that you have that money fully available to you when the bill becomes due. Because when you invest in the market, we know that over the long term, the market continues to go up. But over the short term, the market can be very volatile. So let's say it's maybe the beginning of 2008. You have money for your short-term goals that you want to invest to maybe get a little bit more return. You invest it in the stock market, and then the big crash of 2008 happens, and that money drops by 50%. Now we do know that the market is far higher than it was before the 2008 crash. Now, years and years later, but we don't want that to happen with short-term money because you need that money, you want to make sure you have that full amount available to you. So you want to have in cash your emergency fund and any cash that you need for short and midterm goals. And the rest, we really want to get invested. Now, I mentioned I've seen people have hundreds of thousands of dollars in their bank account. But what you are missing out on, even if it's not hundreds of thousands in extra cash, even if it's say $50,000, you can be missing out on huge growth opportunities. So I went into morningstar.com and gathered some data on the returns of VTI, Vanguard Total Stock Market ETF, on the returns from 2020 to 2024. So let's say you have $50,000 of extra cash and you either leave it in cash or on January 1st of 2020, you invest it in the Vanguard Total Stock Market. Okay, and you leave it there until December of 2024. Now, if it's all in cash, you're gonna get very little interest on that $50,000. If you had invested it in Vanguard Total Stock Market ETF ticker symbol VTI, over those five years, that $50,000 would have grown to $95,529, which is insane. And then if you kept it invested, we're still in 2025 as of this recording, but the market is up quite a bit, that money would have continued to grow. So mistake number one, having too much money in cash, missing out on that long-term growth. Now let's get into mistake number two. Mistake number two is I see people just sort of piecemealing their investment strategy. So maybe you hear such and such a fund is a good investment, so you buy a little bit of that, and then you hear this other stock or ETF is a good one, so you buy a little bit of that, and you don't have any actual overarching strategy. Here's an analogy for you. Let's say you want to bake a cake. Now you wouldn't just dig inside your pantry and grab randomly a bunch of ingredients that you hear are good for making cakes and then just willy-nilly throw in the ingredients without measuring them out, without any strategy. That is not going to give you a good cake. So what you want to do instead is you want to have a recipe. And number one, you need to figure out what type of cake you want to be baking, and then you can pick the right recipe. Another version of this I see is what we call in the industry over-diversification. And really, you can't truly over-diversify for the most part, but we call it over-diversification because it gives you a false sense of diversification. And this is when you own several different funds that are ultimately all invested in the same sort of thing or have a whole lot of overlap. So I see this all the time. Maybe someone is invested in a US SP 500 index fund. They're also invested in a US total stock market fund as well as a US large growth fund. Now, number one, I am a huge fan of index funds. So great job there. And you do, of course, have a decent amount of diversification by not having all of your eggs in one basket in terms of you're still invested in hundreds, if not actually thousands, of different stocks with this type of portfolio. But here you're thinking, oh my gosh, look, I'm so diversified. I'm in three different funds when actually there is a ton of overlap here. So the S P 500 is the 500 largest US stocks. Now, if you're also invested in a US large growth fund, then roughly 250 of those stocks in your SP 500 fund are going to be what makes up this US large growth fund. And then on top of it, you add a US total stock market index fund, which is made up of about 3,000 US stocks, which also includes everything in the SP 500 fund as well as everything in that large US growth fund. So definitely worse mistakes to be making than this. But again, this gives you a false sense of diversification in your portfolio by saying, oh, I'm invested in all three things when you could be just as diversified by just holding the US total market fund. So let's talk a little bit more about figuring out what type of cake you want and finding that recipe. Now, the biggest determinant of risk and return in your portfolio is going to come down to your asset allocation. How much of your portfolio is invested in stocks versus bonds? Now, when we talk about portfolios, we'll say something like a 60-40 or a 50-50. Now, that first number is the percent of stocks, and that second number is percent of bonds. Now, stocks are going to have a much higher expected return over the long term. The US stock market returns about 10% a year on average. But of course, there are very few, if any, years where it returns exactly 10%. So it's gonna give you high returns over the long term. Over the short term, you're going to see a lot of volatility. Whereas bonds are going to have lower expected returns and also lower risk. So you wanna create the cake, that mix between stocks and bonds that is right for you. Now, for those of you listening to this podcast, I'm going to make the assumption that you are probably in your 30s and 40s and have decades until you're going to be using your retirement money. So you probably really want to be fairly aggressively invested and really grow your nest egg, that long-term money that you don't need until retirement. So you're going to want a portfolio that is probably at least 70% stocks, maybe even 100% stocks. Now, this is all going to depend a lot on your risk tolerance, your goals, your time horizon. But as a generalization, you guys should be looking at maybe 70-30 cake recipes, so to speak, 80-20, 90-10, or 100 zero. So once you decide on your cake recipe, you need to figure out what the underlying ingredients are. So how much of that stock portion is going to be in US large cap versus US small cap and mid-cap, maybe some international developed markets, emerging markets, and then also looking at what's going to make up that bond piece. Now, if this sounds really overwhelming to you, you can definitely choose a more simple recipe where your stock piece is invested either totally in the US total stock market, maybe it's in the US total stock market as well as a total international fund. And you can also just use one single fund for your bond fund. The important thing though is if you are going with one of these quote recipes from scratch, even if it's a more simple recipe, you need to make sure that your allocation is staying in balance over the long term. So if we say start with a 70-30 mix, 70% stocks and 30% bonds, what's going to happen is more often than not, the stock market grows much faster than bonds do. So if you set it to 30, sorry, if you set it to 70% stocks and 30% bonds and do nothing, and you look in a year, maybe it's going to be 75 or 80% stocks because that stock piece is growing more than the bond piece. So what you need to be doing is regularly rebalancing at least once a year. So selling off whichever piece is gotten out of whack and investing it in what has not performed as well. And this is a great way to do exactly what you want to do when you invest is sell high, buy low. Now, our emotions will certainly tell us when the stock market is tanking, sell, sell, sell. But logically, we know that's not what you want to be doing. So when the stock market is doing poorly, you want to be selling off some of your bond portion and reinvesting it in stocks, or maybe you don't need to sell any of bonds if you got, say, a big bonus. You can just take that chunk and invest it in the bond piece to get to your desired overall asset allocation. Now, if this sounds way too overwhelming and you still want to manage your own investments, you can use a cake mix, so to speak. And that would be in the form of something like a target date fund. So you will see these often in your 401k as investment options. It might be Fidelity Lifecycle Fund 2040, Vanguard Target Retirement 2055, some sort of initial name with a year at the end. And that is a great option for DIY investors who want to keep things simple. And yes, you can buy target date funds in the form of a mutual fund outside of your 401k if you want to use it in an IRA or a taxable investment account. But what we do not want to be doing is piecemealing our investments and not just, oh, my friend said that this was a good fund and I did some research and that's a good fund and willy-nilly trying to piece together a portfolio. We want to have a strategy starting with the big picture and then getting more granular. So that is mistake number two. The third big mistake that I often see is people having large exposure to one single stock or even several stocks in one specific sector, often the tech sector. We don't want huge portions of our portfolio having that type of risk exposure because if something were to happen to that single company or even sector, then you are at risk of losing a substantial portion of your portfolio. So diversification is really key. Where I see this show up the most is people having large amounts of stock in the company that they work for. And this can happen very naturally if you work for a publicly traded company, of course, and are participating in the ESPP andor getting RSUs andor company stock options. Now, equity compensation is a wonderful thing. It can be a huge benefit. I've seen it really create a lot of wealth for many of my clients. But the problem is a lot of people start getting more and more of the company stock and not knowing what to do with it and holding on to it. And that creates risk, especially when it's the company that is your employer. Because if that company goes under for some reason, then not only do you lose a significant portion of your portfolio, but then you're also out of a job. So again, we really want to diversify, especially out of company stock by regularly selling off your company stock as it vests. I also see this as people maybe inheriting stock positions from their parents. I have a client who decades before I even met her, she's in her 70s now, she inherited a large amount of company stock from her father, a company stock that he worked for for his entire career. And now we're in this situation where there are high unrealized gains. And so we're selling off the stock slowly over time, trying to mitigate the tax consequences along with the consequences of having a highly concentrated stock position. Now, of course, this is a great scenario that this company stock has done really well, that there are large unrealized gains. But again, things can take a turn for the worse. In fact, this company in particular has had a horrible year this year in the stock market. The stock market is up quite a bit, but this company's stock is down in double digits year to date. So I'm really glad that we've been strategically selling off that stock year over year. I also see this show up when people start to try out investing. And so they'll often invest in a couple of stocks, maybe some of the magnificent seven stocks that are fun and exciting. And then it starts to take over their entire portfolio, which again is a good thing. It means that these stocks have done well, but just because they have done well in the past means nothing in terms of how they're going to perform in the future. So it's really important to diversify, take risk off the table, and pare down your concentrated stock positions. So that is mistake number three. These are the three biggest mistakes that I see with DIY investors. And hopefully you got something out of this episode.