Don’t Learn the Hard Way: 5 Costly Investing Mistakes to Avoid
We are just about halfway through 2025 and there are already so many lessons for investors to take away from the global economic and market events. If you want to achieve financial independence sooner, read on for mistakes to avoid in your investing and planning…
Lesson 1: “Invest in more than only the S&P 500!” As a result of its outperformance over the past several years, many investors have developed recency bias, and in many cases far over-weighting their portfolios to the S&P 500. However, while it’s only a small period of outperformance, international stocks have been the leaders so far in 2025. Could this be the start of a longer period of international stocks outperforming US stocks? Maybe, maybe not. What is true, though, is that only investing in one area of the market is a dangerous strategy, especially if you are retired or within 10 years of retiring.
Lesson 2: “Don’t let political views affect your investment strategy.” Time and time again, investors allow their own political biases about new legislation, policies, etc. to influence their financial decisions. Trying to pick the winning stocks or sectors based on a current administration’s policies is a fool’s errand. More times than not, this strategy fails.
Lesson 3: “Forget FOMO!” Try to ignore the “Fear Of Missing Out.” No investor can own every winning stock, sector or fund, and every investor will “miss out” from time to time. So, stop worrying about what you don’t own and instead concentrate on whether you are on track with your long-term investment plan.
Lesson 4: You don’t “have to do something” when markets are volatile. Due to the media, peer pressure or just anxiety, many investors feel an underlying pressure to make changes to their portfolio when the markets are unstable. And in 2025, there has been a great deal of volatility. To be sure, there are definitely strategies to consider; tax loss harvesting, rebalancing, and upgrading the quality of a portfolio are 3 excellent examples. But rash, emotional decisions that materially change your portfolio probably will only set you back.
Lesson 5: Remember the Wall Street “Sales Machine”! This is a powerful factor representing one of the individual investors’ biggest risks. When markets decline sharply, Wall Street starts firing out all the pitches and sales promotions for all the investments that are working at that moment! Annuities top that list. And today, Wall Street is now preparing for a full blitz of private investments to sell to retail investors. Tread very carefully here. Is it just a coincidence that sophisticated investors like the Harvard and Yale endowment funds are currently trying to unload a lot of their private investments? Is Wall Street looking to dump these assets on the individual investor?
In short, if you want to achieve financial independence, your odds are much higher if you can learn from those 5 lessons we just listed and avoid or minimize those common investor mistakes. And once you’ve done that, here are two important considerations that you SHOULD plan for:
First, inflation. When the prices of things you buy rise faster than expected (like now!) you need more income to afford them. The loss of purchasing power is arguably an individual’s biggest risk in the long term. As such, you must own assets that can outpace the growth of inflation.
And second are asset “bubbles.” While there is no formal definition of what constitutes an “overvalued” market, we should be respectful of market history. Be mindful of investing too much of a portfolio in one asset class that is expensive by historical standards. Overleveraging into a sector or market “bubble” can result in a large drawdown and can set you back materially if/when prices revert back to long term averages.
As an example, the bubble in US large cap growth equities in the mid to late 1990’s burst in 2000; what followed was a decade of a zero return for the S&P 500. This can apply to bonds too. After having a very good stretch, bonds became very expensive and as a result have posted very low returns over the past decade. In fact, the Vanguard Total Bond Market fund, arguably the biggest bond fund in the world, has only averaged 1.64% over 10 years…Certainly, not keeping up with inflation. Think about how many model portfolios follow the popular 60/40 (60% stocks/40% fixed income) portfolio strategy. If 40% of your portfolio for the last 10 years was indexed to the aggregate bond market then you had a significant drag on your purchasing power.
In summary, keep your focus on long-term risks that will affect your investment plan such as inflation; be aware of inflated asset prices as well. And don’t worry too much about short-term noise or about missing the “hot” stock that your neighbor told you about. Don’t let your political views influence your portfolio. And certainly don’t make emotional decisions about investing in “safe” (…although possibly highly illiquid and expensive) investments until the market volatility ends and the “dust settles.” We never get an ALL CLEAR message for market bottoms. And never forget the wise Charlie Munger’s famous words….”Show me the incentive, and I will show you the outcome”.
Disclosures: This is not an offer or solicitation for the purchase or sale of any security or asset. While the information presented herein is believed to be reliable, no representation or warranty is made concerning its accuracy. The views expressed are those of NCM Capital Management, LLC and are subject to change at any time based on market and other conditions and NCM does not undertake to update or supplement its newsletter or any of the information contained therein. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable. There is no guarantee that the investment strategies discussed above will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. Investment advisory services are offered through NCM Capital Management, LLC, an SEC-registered wealth advisory firm domiciled in New Jersey. This communication is not to be construed or interpreted as a solicitation or offer to sell investment advisory services. For additional information about NCM Capital Management, LLC, you may request a copy of our disclosure statement as set forth on Form ADV. Readers are encouraged to consult with their own professional advisers, including investment advisers and tax/legal advisors. NCM Capital Management, LLC does not provide legal or tax advice. NCM Capital Management, LLC can assist in determining a suitable investing approach for individuals, which may or may not resemble the strategies outlined herein.