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Don’t Fall For This Worst Investing Mistake

By Joseph Hogue, CFA 2 Comments - The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited November 1, 2016.

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I followed Peter’s Grow Your Dough portfolio on Motif Investing last year and, while he didn’t win the challenge, it was one of the best examples of how to invest.

Peter’s investments didn’t jump higher on the year but he did manage to avoid one of the worst investing mistakes. This money mistake is responsible for most regular investors missing their investing goals and under-performing the stock market by a wide margin.

Not only will avoiding this one investing mistake help you meet your goals but it’s also one of the best stress-free ways to invest your money.

Beat Your Goals Instead of the Market

Turn on CNBC any particular day and you’d think the goal of investing was to ‘beat the market’. Despite an endless drone of stock picks from pundits, this goal seems to be unreachable for most investors.

A study by research firm DALBAR found that the average investor earned an annual return of just 2.6% over the decade through 2013. That’s compared to an average annual gain of 7.6% on stocks in the S&P 500 and an average 4.6% on bonds.

That belief in the need to beat the market is the root of the problem. Investors focus singularly on finding individual stocks that will zoom higher and make them rich overnight.

Peter had his own brush with this in Sarepta Therapeutics and a roller-coaster ride that proved why investing in a single stock is a bad idea. Investing in individual stocks ultimately leads to the worst in investing behaviors.

Investors chase the story stocks they hear about on TV, buying in with all their money and at ridiculous prices. When the shine starts coming off the company, the shares plummet as the bandwagon sells out of the stock. The investor panics and sells everything as they see their nest egg plunge.

The real goal of investing isn’t about beating the market but beating your own financial goals. When you’re enjoying the retirement you always dreamed of, will it really matter if your portfolio fell short of the stock market return over a few years?

It turns out that one of my favorite investing tools (and Peter’s too) is perfect for avoiding the investing mistake of focusing too narrowly on one stock.

How I Invest on Motif Investing

Motif Investing isn’t just a way to save money on investing fees but a great way to find stocks to invest in and make sure you diversify risk across many investments.

Each of the 12,000+ motifs created by other investors is available on the site and separated across more than 10 categories from green investing to dividends and bonds. Looking through the motifs created by other investors can help give you ideas for stocks to buy for your own portfolio.

great-investing-ideas-motif-funds

Whenever I hear about a stock that might make for a good investment, I always make it a point to look for related companies within other motif funds on the website. Looking through some of the other stocks in the same industry or theme helps to understand why the investment might be a good one as well as pointing out other great stocks to buy.

Buying the group of stocks instead of just one potential high-flyer makes sure I benefit from the bigger investing picture and that I don’t get caught up in just one stock.

It makes it much less likely that my nest egg will shoot higher but also reduces the risk that I lose everything in one spectacular crash. It also means I don’t have to worry about checking in on my stocks every week or even every month. I know that my portfolio will rise gradually with the group of stocks instead of bouncing around with one company.

I’ve created four funds on Motif in which I invest and hold over 44 stocks and 16 ETFs in the group. Instead of paying upwards of $600 to buy these 60 investments, I paid just $40 in trading fees and get instant diversification. The only investment I don’t use Motif Investing for anymore is when I put money to my p2p investments.

Avoid one of the worst investing mistakes and reach your financial goals by diversifying across many stocks rather than just one pick. Motif Investing makes this easy by allowing you to group up to 30 stocks in a fund and buy them all with one commission. You get instant diversification and save hundreds on investing costs.

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  • Why Investing In Single Stocks Is A Bad Idea: A Real World Example

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    Motif Investing now allows you to customize an existing motif, or even to create your motif by choosing your own bundle of up to 30…

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Last Edited: 1st November 2016 The content of biblemoneymatters.com is for general information purposes only and does not constitute professional advice. Visitors to biblemoneymatters.com should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.

This article is about: Investing

About Joseph Hogue, CFA

Joseph Hogue, CFA is an investment analyst and blogger. He runs six websites on topics including personal finance, investing, crowdfunding and making money from home. A veteran of the Marine Corps, he holds the Chartered Financial Analyst (CFA) designation and lives with his family in Medellin, Colombia. Don't forget to say hi on Twitter.

Comments

    Share Your Thoughts: Cancel reply

  1. PatientWealth says

    I find the best and cheapest way to diversify is to simply buy an S&P 500 ETF and buy the same amount of it every month and not sell it. What do you think of that?

    Reply
    • Joseph Hogue says

      Hi PatientWealth,

      That’s definitely the stress-free option but isn’t completely diversified. Your portfolio will only have exposure to the 500 largest companies in the United States. It’s not a bad place to be but misses out on a lot of other areas like emerging markets, international, bonds, and doesn’t have much real estate exposure.

      Plus, it will still cost a trading fee each time you buy. You could add the SPY with funds that cover other topics like the ones above (overweighting the SPY so you buy more) in a motif fund and then buy them all together.

      Thanks for the comment. I know a lot of people that just buy one index and it isn’t a bad way to go.

      Reply
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