Prefer to listen rather than read? Pair this post with Deliberate Money Moves Podcast: 7 Mistakes Investors Make.

We all make mistakes – I know I’ve made my share.

But for some reason, when it comes to investing, we are prone to repeating our mistakes – over and over. I think it’s because the “lesson” we tell ourselves we learned isn’t the right one.

Too often, we get too specific in terms of what happened and believe (rightly so) that we won’t ever fall for that exact scenario again. But that doesn’t help. Because the same scenario never recurs.

Ever heard the phrase “This time it’s different?”

This is said by people looking too closely at the trees and often missing the forest entirely. History never repeats, but it does rhyme.

So, with that in mind let’s broaden our approach and discuss 7 mistakes that investors make. And when I say investors, I mean pretty much all of them. From the individual managing her 401k to the professional managing hundreds of millions of dollars. Because these are mistakes tied to our human nature.

1. Looking to Get Rich in a Hurry

We all know someone who has made a killing in the markets – or so they would have us believe. It seems to make sense. Make a big bet, win big and walk away! Unfortunately, our human nature gets in the way.

First, it’s very unlikely we’ll have enough insight to actually spot a big market move before it occurs. This is because there are tens of millions of people out there trying to do the same thing. How can we expect to beat all of them to the next great investment?

Then, even if we do get lucky and ride an up-wave in prices, how will we know when to sell? We’ll be so thrilled that we were right when so many others were wrong, that we are blinded to any indication that the situation has changed. Our ego takes hold and doesn’t let go easily.

Further, there is no walking away. Instead, much like the poor soul sitting at the blackjack table at 3 a.m., we will look for the next big winner and so on until we’ve lost pretty much everything.

The markets are for long-term investors, which is why I recommend against investing any money you expect to spend in the next 5 years.

2. Not Having a Plan

Investing successfully requires a series of decisions that are closely coordinated with each other and with your plan.

What the heck does that mean?

Well, money is just a tool we use to find our success. It is never the end goal itself. So, we must know why we are investing and what we need to accomplish with our investments. It’s never enough to simply want “more.”

When we invest without a plan we are without direction in a sea of uncertainty and decision points. We are like a pinball bouncing around from one shiny thing to another. Instead, we need to build a plan first and then build an investment strategy that supports our plan.

3. Going with the Masses

There is a herd mentality with investors that comes from the fact many of us don’t want to do the work to find what’s right.

Sometimes the herd is right…for a while. But all too often, the herd shifts directions without telling us. Or, more likely, we get so engaged with the strategy the herd brought us that we don’t notice when it is no longer out of favor.

Now, I’m all for doing what works. But I think we need to take a longer view of what works than most of us do. Instead of doing what’s working now. I prefer to do what has always worked.

4. Focusing on the Short-Term

Similar to number 3 above, a focus on success today, this week, this month or even this year can take you away from the strategy that will work over the next 5-, 10-, or 20-years. And isn’t that really what we are trying to do?

Investment fads seem to show up every month and some of them can last for several months or even years. But they eventually peter out and there’s no way to know when that’s going to happen. So, again, keeping our focus on our long-term investment success is most important.

5. Wasting Time on Things that are Beyond Our Control

Have you ever watched your company stock or maybe your portfolio from day to day? Not that you are planning on doing anything, you just can’t seem to take your eyes off of it.

When we do that too often (or, really, often at all), we can develop a sense that we are actually in control of where it goes. It’s like the sports fan who blames himself for his team’s loss or takes credit for a win. We have no control over where our portfolio goes on a day-to-day basis.

If your portfolio falls 10% today and rises 10% tomorrow, but you didn’t see that it fell on that one day, you probably shrug your shoulders and keep your plan in place. However, if you are watching every day, isn’t there a possibility you’ll want to make a change after the initial 10% drop? And wouldn’t that completely derail your long-term strategy?

Now, I’m not saying pay no attention to your portfolio. I’m just saying we need a process for reviewing what we are doing, why and whether we continue to believe it will work.

6. Taking the Markets Personally

For some reason, this happens to men more often than women, but we should never feel like a success or a failure simply because the market went up or down. The markets not only don’t care about you, but they don’t even know you exist. We are simply parasite investors at our level, tying our retirement to the historically consistent long-term growth of a diversified portfolio.

When you get to the end of your life and you have been able to do almost everything you wanted (at least as far as money is a limitation), you can begin to feel like a success. Any date before that and you may forget the quest continues.

7. Not Admitting Your Limitations

Said another way, we may feel we are smarter in this area than we actually are.

Remember that friend I mentioned who talks about her winning trades? Well, she’s likely forgetting the losing trades completely and is almost certainly not fairly representing her overall performance.

Tens of thousands of investors have graduate-level degrees in Finance, entire careers of experience, and the most powerful technology around all geared to “beat” the markets. What makes us think we can beat them too (and, by definition, beat all those whiz kids)? Our limitations in this area are many, but here’s the main one: we just aren’t that interested. If we were, we’d be one of those whiz kids!

What Gets In The Way? 

Clearly, it’s us.

The one theme in all the mistakes listed here (and the many that may have crossed your mind as you read this) is that they are self-made. I would go so far as to say that if you invest in a properly diversified manner, in a portfolio that won’t freak you out when it crashes (and it certainly will, several times over) you can’t help but be a successful investor.

Our humanity is the problem. The desire for safety in times of danger drives us to do the one thing that most certainly will kill our long-term financial life: we sell out of the markets when they are low.

You can make this easy.

Initially, you need an Investment Philosophy. This is an outlook that is true in all seasons and environments which leads to an actionable Investment Strategy. That strategy not only follows your philosophy but provides a portfolio that, historically, has provided the sort of returns you need to support your Financial Plan.

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