The 5 Most Common Mistakes Investors Make

by Manisha Thakor

As a financial advisor I’m frequently asked: “Why should I pay someone to manage my investments?”

You may think an advisor should find “the next hot investment.” Increasingly, though, I’ve come to believe the real value is in helping clients avoid painful, crippling, ‘WHAT-was-I-thinking?’ mistakes. One of my mentors says it best: “Sometimes you need to save yourself from yourself.”

Investors are human. Our short-term emotions can influence decisions that are not in the best long-run interest of our portfolios. A good financial advisor will help you detect and manage that emotional component – and potentially avoid actions that cost both heartache and money over the long haul. Here are five of the most common mistakes I’ve seen investors make:

(1) Not gauging the proper level of risk for your stage in life. The classic example is an investor who ‘makes it’ - accumulates enough assets for a comfortable retirement - yet sticks with unnecessarily risky investments that could create a game-changing decline in portfolio values. Conversely, younger folks, who should be aggressive fighting inflation and preparing for longevity, often are too conservative with their asset allocation. In this case, even if they save plenty, they will lack the purchasing power growth to show for it.

(2) Failure to analyze risk. This mistake occurs when you don’t consider the full range of factors that determine your risk tolerance. My colleague, Larry Swedroe, at the BAM Alliance has developed an excellent framework to think about a person’s ability, willingness, and need to take on risk. Ability is based on time horizon; willingness measures how much volatility you can stomach; need refers to the level of return required to meet spending goals. Ideally, a portfolio incorporates all three factors while seeking the least amount of risk necessary for sufficient growth.

(3) Ignoring the math of losing money. Quick test. You have an investment that drops 50%. How much must it then gain? The answer may surprise you: it’s 100%, just to break even. Now imagine an investment drops 80%; you’ll need a whopping 400% gain just to get back to where you started. Daydreaming about cashing in on the next hot IPO is fun, but before you commit hard-earned money, do your homework and determine if you have the resources (and stomach) to endure the worst-case scenario.

(4) Over-investing (yep, like over-eating). It is possible to get financial indigestion! This happens when you invest money needed for maintaining your base standard of living in the near term. Your physical health depends on a diet with the right mix of proteins, fats and carbs. Your financial health relies on the proper balance of stocks, bonds, and cash. If you’re overcommitted to stocks and bonds in a volatile market, you could find yourself cash strapped and financially undernourished in your day-to-day life.

(5) Relying on polysyllabic advice. You probably have a neighbor, colleague, friend or relative who is fluent in Fancy-Money-Speak. Their extreme eloquence indicates good financial sense, right? Not necessarily. Familiarity with knotty investment jargon isn’t the same thing as understanding how to construct a logical portfolio. If an investment idea can’t be explained to you in plain English, be skeptical. Truly solid investment advice should be comprehensible to a sixth grader.

To answer the original question - succumbing to any one of these five pitfalls can cost you far more than the one 1% per year many financial advisors charge for their work. Whether you invest on your own or with professional, help keep these five common mistakes in mind to increase your financial well-being.

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Manisha Thakor

From Manisha's linkedin profile page:

Manisha Thakor is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The BAM Alliance. 

Manisha and her colleagues provide both evidence-based wealth advisory services for high-net-worth households and core asset management solutions for women and families nationwide with $80,000 or more in investible assets. 

An ardent financial literacy advocate for women, Manisha is the co-author of two critically acclaimed personal finance books: ON MY OWN TWO FEET: a modern girl’s guide to personal finance and GET FINANCIALLY NAKED: how to talk money with your honey. She is on Faculty at The Omega Institute and serves as a Financial Fellow at Wellesley College. Manisha is also a member of The Wall Street Journal’s Wealth Experts Panel, a member of the 2015 CNBC Financial Advisor’s Council, and wearing her financial educator’s hat serves as a part of TIAA-CREF’s Women’s Initiative. 

Manisha's financial advice has been featured in a wide range of national media outlets including CNN, PBS, NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Women’s Day, Glamour, Essence, and MORE magazine.

Prior to joining the Buckingham team, Manisha spent over twenty years working in financial services. On the institutional side she worked as an analyst, portfolio manager and client relations executive at SG Warburg, Atalanta/Sosnoff Capital, Fayez Sarofim & Co., and Sands Capital Management. After this she moved to the retail side and ran her own independent registered investment advisory firm, MoneyZen Wealth Management. 

Manisha earned her MBA from Harvard Business School in 1997, her BA from Wellesley College in 1992 and is a CFA charterholder. She lives in Portland, OR where she delights in the amazing Third Wave coffee scene and stunning natural beauty of the Pacific NorthWest. Manisha’s website is