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4 Investing Mistakes You Can't Afford to Make in the New Year

By Maurie Backman – Dec 21, 2021 at 5:18AM

Key Points

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Steer clear of these at all costs.

You may have specific investing goals in mind for 2022, all of which involve you making money. But if you're not careful, your big plans for the new year could easily backfire. Here are four investing mistakes you should do your very best to avoid.

1. Panic-selling if the market crashes

We don't know what the stock market has in store for 2022. Maybe stock values will hold steady. Or maybe we'll experience our biggest stock market crash in years.

While there's not necessarily a specific reason to think stocks will do poorly in 2022, it's always a good idea to be prepared for a market crash. And a big part of that involves having the right mindset.

A person looking at a laptop in a dark room.

Image source: Getty Images.

One of the worst mistakes you can make as an investor is selling off investments in a panic as soon as their value declines substantially. When you do this, you lock in losses. But when you sit tight and wait things out, you often emerge unscathed.

Going into the new year, figure out ways you might manage to cope with the stress of a stock market downturn. That way, if things take a turn for the worse, you won't be tempted to dump stocks at a loss off the bat.

2. Not having a diverse portfolio

A diverse portfolio is important for two reasons. First, it can help you build more wealth over time. Second, it can protect you in the event of stock market volatility.

Imagine the bulk of your holdings are tech stocks, and that segment takes a massive hit in 2022. Suddenly, you might be looking at serious losses. A better bet is to own a wide range of stocks across various market segments. You can also diversify your holdings by loading up on broad market index funds or exchange-traded funds (ETFs).

That said, you shouldn't necessarily limit yourself to a single asset class in your portfolio, either. Stocks are a great long-term investment, but you may want to dabble in other areas, like real estate and cryptocurrency.

3. Investing too conservatively

If you're the risk-averse type, you may be hesitant to hold many stocks in your portfolio. But if you let yourself invest too conservatively, you could miss out on big returns through the years, leaving yourself with less wealth down the line.

You may be worried about stocks crashing in 2022, or you may not be ready to take on the risks associated with owning digital coins. But one thing you shouldn't do in the coming year is limit yourself to safe investments only, like bonds.

Granted, if you're on the cusp of retirement, playing it safe is the way to go. But if you're years away from that milestone, it pays to branch out and start buying stocks if they currently comprise just a small portion of your portfolio.

4. Going all-in on crypto without doing your research

Many investors have been enjoying success with cryptocurrency, and so you may be thinking of investing in it, or adding to your current holdings, in 2022. That's not necessarily a mistake. But one thing you shouldn't do is go from owning virtually no cryptocurrency to having it suddenly make up 50% or more of your portfolio.

Though there's no such thing as a risk-free investment, cryptocurrency is notoriously risky -- more so than stocks, in fact. Not only do cryptocurrency values tend to swing more wildly than stock values, but digital coins haven't been around for nearly as long as some of today's oldest publicly trading companies. And because of that, we don't know how viable cryptocurrency is as a long-term investment.

If you're going to add cryptocurrency to your portfolio in the new year, start small. And make sure to maintain a diverse mix of investments outside of cryptocurrency.

With 2022 approaching, it's natural to start mapping out an investment strategy for the new year. Avoid these mistakes to set yourself up for 12 months of success.

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