Founder of Fluent in Finance Andrew Lokenauth is a 15-year financial planner and Wall Street veteran who held leadership positions at JP Morgan, Goldman Sachs, and Citi. He’s also a LinkedIn Top Voice with an online community of more than 1 million followers. He’s helped countless clients achieve financial freedom and security through investing, but he’s also seen many others foil their own progress by making preventable mistakes.
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Over the years, he’s noticed that the same handful of errors continue to hamper investors from all walks of life, backgrounds and professions.
Here’s his top 10 list of the investment habits most likely to keep you from getting rich.
Failure To Establish Clear Financial Goals
Many people begin their investing journeys with murky aspirations like “getting rich” or “having enough to retire.”
They’re getting off to a bad start.
Step 1 for all investors is to identify precisely why they’re investing, what they hope to achieve and when they hope to achieve it by setting clear and feasible goals with defined milestones to measure progress along the way.
“Failing to establish specific long-term and short-term financial goals makes it difficult to develop an effective investment strategy,” said Lokenauth. “Goals provide direction and motivation.”
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Neglecting To Gauge Your Risk Tolerance
With clear and defined goals in place, the next step — and one that so many investors neglect — is to gauge the amount of risk you’re willing to tolerate according to factors like your age and timeline.
“Investing in assets that are too risky or too conservative for your comfort level leads to making emotional rather than rational decisions,” said Lokenauth. “Know your true risk appetite.”
Trying To Time the Market
The primary goal of investing is to buy low and sell high, but from real estate to stocks to crypto, getting the timing right requires skills of prognostication that are beyond the capacity of nearly all who try.
“Attempting to predict market ups and downs rarely works long term,” said Lokenauth. “Stay invested through volatility.”
Chasing Past Performance
Historical gains and losses can add context and color to your evaluation of a company, fund, sector or asset and its future prospects. But never assume that Tesla, the biotech industry, Ethereum or anything else will perform well this coming year because it made investors rich last year.
“Don’t invest based solely on an asset’s recent outstanding returns,” said Lokenauth. “Past performance does not guarantee future results.”
Failure To Diversify
People put too much faith in one investment because they think the only way to win big is to bet big. But in Lokenauth’s experience, putting all your eggs in one basket in the pursuit of fast, outsized gains typically leads to predictable, avoidable and unfortunate outcomes.
“Concentrating your investments too heavily in one asset class increases portfolio risk,” he said. “Diversify across asset classes.”
Letting Fees Diminish Your Returns
Putting your money to work used to be expensive, but the modern investor doesn’t have to pay brokerage fees, commissions, trading fees or any of the many costs that once kept ordinary earners out of the market.
Yet many still do because they don’t shop around or simply don’t know about free alternatives.
“Excessive transaction, management and account fees directly reduce returns over time,” said Lokenauth. “Prioritize low-cost investments.”
Not Rebalancing Regularly
Setting your portfolio is good, but forgetting it is a mistake no matter how much you love your holdings because, eventually, their percentages will fall out of balance and you’ll need a tune-up to regain equilibrium.
“As markets shift, asset allocations can drift from target levels,” said Lokenauth. “Rebalance periodically to maintain the desired allocation.”
Investing Emotionally
The ability to leave emotions out of money-based decision-making is one of the hallmarks of a successful investor because feelings cloud judgment.
Panic-selling for a loss during market downturns and missing the recovery is one example of emotion-based investing. Jumping into a trending meme stock at its peak only to ride it all the way down when it crashes is another. There are many other scenarios, but they all involve the absence of cold analysis — and the typical outcome is predictable.
“Making decisions based on fear or greed often leads to buying high and selling low,” said Lokenauth. “Remain disciplined and objective.”
Investing Inconsistently
Dollar-cost averaging involves contributing a set amount of money to the same investments on the same day every week or month. Over time, you’ll buy more of your ETF or whatever when it’s cheap and less when it’s inexpensive. That’s just one example strategy, but nearly every expert who advocates for long-term investing also advocates consistency above nearly all else.
“Sporadic investing fails to take full advantage of compounding over decades,” said Lokenauth. “Invest on a regular schedule.”
Failing To Review, Reassess and Adjust When Necessary
Most experts agree that obsessing over performance is self-defeating because checking in with your portfolio too frequently can lead to emotion-based trading. However, ignoring it over time can be just as dangerous. That’s because success depends on your investments evolving with your knowledge, financial situation and other circ*mstances.
“Infrequent reviews allow problems like overlapping holdings or allocation drifts to persist,” said Lokenauth. “Review your portfolio at least annually.”
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This article originally appeared on GOBankingRates.com: I’m a Financial Planning Expert: These 10 Investing Habits Are Keeping You From Getting Rich
