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Investing Basics

Avoiding the Most Common Investment Pitfalls

The New York Times recently published an interesting item on their "Bucks" blog discussing the ten most common mistakes investors make, courtesy of Jerry Miccolis, the co-author of Asset Allocation for Dummies. It's a solid list; many people do fall into the traps he names. But, at the same time, we feel that, for the most part, they're avoidable if you take the right approach.

Articles by Betterment Editors

By the Editorial Staff
Betterment Resource Center  |  Published: November 15, 2010

The mistakes Miccolis highlights fall into a few categories, the first one being portfolio building: allocation, diversifying, and balancing investments. These decisions can be difficult to make and maintain on one’s own. What we’ve created at Betterment is a platform that does all this automatically, so you can use your time, energy, and quantitative skills on other things. Like sudoku. Or doing your taxes (something we unfortunately can’t make any less of a headache).

Don't be like her.
Don’t be like her.
 

The second category of mistakes centers around age-old “I can beat the odds” hubris. Miccolis cautions readers against letting their emotions dictate their investing, “chasing performance,” and “trying to outsmart the market.” Here’s the thing about investing: as the adage goes, a watched pot never boils. Investors who try to take their pot of money on and off the flame (go with us on the analogy here) end up with a lukewarm outcome. That’s why we feel the “set it and forget it” approach, by which you’re less likely to make whimsical changes in your investments, makes the most sense for long-term investors.

Miccolis has a few other points, which you should definitely check out. And while we feel it’s important to identify potential areas where you could get off track with money management, perhaps even more useful would be tips on how to avoid falling into these traps. We’ve identified our own list of money management mistakes you might encounter, and over the next couple of weeks, we’ll be bringing you installations from our guide on how to avoid them. Keep an eye out for these upcoming posts, and in the meantime, let us know your favorite investment tips in the comments, or on Facebook or Twitter.

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