Let me paint a picture. You are at a cocktail party with a friend. He can’t stop talking about the gains he recently made on the latest tech stock investment. You start to feel envious, maybe even a bit angry that you didn’t get in on the investment. Then, you vow to buy some shares as soon as possible.

Here’s a reality check. Chasing the next best investment idea or “yesterday’s news” is rarely a good idea. Sometimes even the smartest people act on poor investment ideas they hear about in the news or from a friend or family member.

If there’s one thing you take away from this article let it be this: investing based on emotion or impulse is not a sound investment strategy.

At the very least you should step back and research the stocks you are interested in before committing your hard-earned money.

We’ve advised investors for decades on how to best manage their portfolios. Even though most investors know that the best investment strategy is one that prioritizes their goals and circumstances, many of them still make mistakes on their own. In this article, we’ll uncover five of the most common ways investors sabotage their own portfolios so you’ll be prepared to avoid the same pitfalls.

Ways Investors Sabotage Their Portfolios

1. Timing the Market

Time has shown that trying to time the market is a fool’s errand for most investors. Whether it’s overreacting to breaking news or discovering the newest investment trend, the idea of getting in and out of the market at the right time puts investors on a fast track to lose money.

Remember the recent financial crisis? Some investors got out in late 2008 or early 2009 at exactly the wrong time. Others were afraid to invest at the lows when valuations were the most attractive. In both cases, investors suffered real losses and lost opportunities by trying to time the market. Their emotions, rather than a logical investment process, likely drove them.

2. Having a Big Ego

Letting pride sabotage sound investment decisions is more common than one would think. The results of stock markets since the election of Donald Trump are a case in point. Being upset that a candidate didn’t win the election is a poor reason to decide to exit the market. Those who were upset by Trump’s victory and got out of the market have missed out on significant gains since November’s election.

 Another common form of investor self-sabotage is holding onto an investment that was clearly a mistake to buy. Often, the best decision to make with a bad investment is to admit fault, sell it and move on. If the loss is in a taxable account there may be opportunity to enjoy a tax benefit in the process. Ultimately, the focus should be on making the best use of one’s money, not trying to salvage pride.

3. Trying to Make Up for Lost Time with Aggressive Investing

If an investor has started saving for retirement later in life there may be an inclination to invest with an aggressive approach that may not be appropriate for their age and risk tolerance. An investor in this situation would hope for outsized gains to compensate for lack of saving earlier on. This is a potential recipe for disaster.

Invariably the markets will take a downturn. If an investor’s strategy is too aggressive it may be in line for large losses. This presents a challenge if the investor doesn’t have ample recovery time due to their age. Remember, there are other ways to catch-up. We suggest investors avoid taking more risk than is appropriate for their age and situation, and work with an independent wealth manager. 

4. Focusing on the Current News Cycle

Good news and bad news comes and goes. In fact, they often overlap each other. If an investor listens to CNBC on any given day they will hear experts say why this is a great or terrible time to invest. They will even make compelling arguments for or against particular stocks, industries or segments of the market.

Nothing against CNBC, but, I wouldn’t base investment decisions on their reporting. Mainstream news reports fall short because they typically only focus on what’s happening in the short-term. Successful investors take the long-term view and invest with a plan that reflects their goals and time horizon. In other words, they have a disciplined investment process.

5. Letting Emotion Guide Your Decisions

I’ve mentioned this already, but this point bears repeating. Investment decisions should be made based on a process, not emotions. Instead of making emotional decisions, employ a disciplined process of analyzing and selecting investments that are appropriate for your overall portfolio to help you reach your long-term goals.

It has been said that fear and greed drive many investing decisions. In our experience, we couldn’t agree more. It can be tough to set emotions aside, especially when the market is falling. However, a successful investor will know how to do this well.

The ACG Approach

We understand that mistakes happen. While we never want to see an investor sabotage their portfolio, our team of expert investment professionals can help you pick up the pieces. We guide investors in avoiding these and other common investing mistakes.

Our focus is on analyzing an investor’s current portfolio in light of their financial goals, time horizon and risk tolerance. Where appropriate, we will suggest changes and help you implement them. Any strategic adjustments are made with your unique situation and goals in mind, including any potential tax implications.

Give us a call at (804) 323-1886; we’d love to discuss your situation and your concerns to see if we help you.