15 Steps if Your Investments Aren't Beating the Market

If you've been a below-average investor and want to get better at making money, know that you can. It's not that difficult to become an above-average investor -- after all, half of all investors are. You can get even better than that, too. Acting on many of the following steps will be a good start to get you there.

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We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

One way to not gain ground when investing is to carry high-interest-rate debt, such as that from credit cards. Think about it: The stock market has averaged annual gains of about 10% over very long periods. If you're investing and beating that -- maybe even averaging annual gains of 15% -- you can still lose ground if you're paying 20% or 25% on a lot of debt. Pay off high-interest-rate debt before aiming to get ahead in the stock market.

ALSO READ: 3 Secrets to Beating the Average Investor

If you don't really know the companies you're invested in very well, your investing performance may suffer. Ideally, you should have a good handle on exactly how a company makes money -- which is its business model. For example, does it manufacture items that it sells, or does it develop new technologies and license them to other companies for manufacturing? Coca-Cola, for example, isn't busy bottling lots of cans of its flagship soda; instead, it makes concentrated syrup for the beverages, and bottling companies do much of the rest of the work.

A good way to underperform in investing is to sell many of your holdings too soon. If you're invested in great companies that look like they can grow bigger over the coming decade or two, why sell out of them after they just deliver, say, a 50% or even 100% gain? By hanging on, you may multiply your investment tenfold over a decade or more. Similarly, don't sell out of impatience if a promising company doesn't deliver in the first few months that you hold it. Many great companies will stall or even retreat over a period of months (and possibly years) before taking off on a tear. Patience is powerful in investing.

Some people are so impatient that they don't stay in any stock very long. Even if a stock is performing well, they may sell out of it because they see another stock that looks good. Trading frequently is not generally a good idea. For one thing, your gains will likely be largely short-term ones, which are taxed at your ordinary income tax rate and not at the long-term capital gains tax rate, which is lower for most of us.

ALSO READ: 3 Great Stocks You Can Buy and Hold Forever

The most extreme frequent traders are the day traders, who may only own various stocks for minutes -- many times without even knowing what the companies do. Day traders are setting themselves up for big trouble. Consider the words of the Securities and Exchange Commission (SEC) on day trading: "Day trading is extremely risky and can result in substantial financial losses in a very short period of time."

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Investing "on margin," where you are buying stocks with money you borrowed from your broker, is not advisable. Yes, if everything goes your way, you can amplify your gains, as you'll own more shares than you otherwise could have afforded. But your losses will be amplified, too -- in fact, you can easily lose more than you invested. And the whole time that you're invested with borrowed money, you'll be paying interest to your brokerage. Brokerages make a lot of money through margin, and investors often don't.

Another common blunder that investors make, which contributes to subpar performances, is trying to time the market. If the market has been soaring for a year or two, they may sell out of stocks, expecting a correction or crash. But the market may just keep rising for another year or two, and they'll miss out, sitting on the sidelines.

ALSO READ: If I Had $5,000, This Is How I'd Invest It

Are you investing in any stocks priced around $5 or less per share -- or are you thinking of investing in them? Those are penny stocks, which are notoriously volatile and risky. Think again -- and steer clear. It's tempting to assume that a stock that costs $0.35 per share is a great bargain and likely to surge (in part because hypesters are falsely claiming that it will), but you can more reliably double or triple your money on established, profitable, growing companies -- even ones trading for more than $100 per share. Consider, for example, that Amazon.com shares were trading around $750 apiece in late 2016, and at the time of this writing, they're near $3,270.

Here's a painful error many investors make: trying to break even on losing stocks. Imagine, for example, that you invested in Scruffy's Chicken Shack (ticker: BUKBUK) at $100 per share and now it's at $50 per share. You have no faith in management and would never buy the stock now, but you're hanging on, hoping it will revive enough for you to get all or more of your money back on it. That's a terrible decision. Instead, sell out of any stocks in which you have little to no confidence, moving whatever money that generates into stocks in which you do have a lot of confidence. You're more likely to make up those losses in good performers than in companies that have lost their way.

You may be familiar with value stocks and growth stocks -- ones that are, respectively, trading for less than they're worth and growing rapidly. Investing in growth stocks can make you rich, but you should never be buying into them at any cost. Do pay attention to valuation and aim to pay less than you think the stock will be worth in the future, when you plan to sell. Remember that some stocks can be so overvalued that they may tumble and then take a decade or more to get you back in the black. Those who invested in Cisco Systems at its peak two decades ago, for example, are still underwater.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Letting your emotions influence you is another recipe for disaster when investing. Check yourself now and then, to make sure you're not acting on greed or fear. Greed can have us piling into overvalued stocks that have soared and are more likely to fall in value than rise. And fear can have us bailing out of stocks along with the crowd, if the market (or even an individual stock) starts heading south. Be a rational, objective investor.

ALSO READ: 5 Tips to Conquer Your Stock Market Fears

You may be able to boost your portfolio's performance by adding some healthy and growing dividend-paying stocks to it. If you have a portfolio worth, say, $300,000, and it has an overall average dividend yield of 4%, you're set to collect $12,000 annually from those stocks -- and that sum can be reinvested in more shares of stock without any sacrifice or deprivation. Better still, healthy and growing dividend payers tend to increase their payouts over time, and their stock prices will rise, too. Win-win!

For many people, the best way to improve their investing performance is just to give up on the idea of researching lots of stocks and carefully deciding which ones to buy, and when -- and when to sell. Instead of all that (which takes time and skill), just park your long-term dollars in a low-cost index fund or two. That will have you roughly matching the return of the index that the fund tracks -- such as, perhaps, the S&P 500. It's hard to beat index funds, and they're an excellent investing strategy for most investors.

One of the best ways to improve your investing is to keep reading and learning more about it. Read about great investors and their strategies, great businesses and how they got and stayed great, and just businesses in general to see what strategies work well and what causes companies trouble.

ALSO READ: 3 High-Risk, High-Reward Stocks to Add to Your Watchlist

As you're reading about investing, read about your own investments, too -- to make sure you don't end up blindsided by bad news that sends the shares down one day. At a minimum, aim to read the quarterly and annual reports of the companies in which you're invested, and occasionally look the companies up online, too, via a news search engine, to see what their latest developments are.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Sticking with index funds can improve you from a below-average investor to an average one -- by delivering the stock market index's returns. But that's actually above average, too -- because even most actively managed stock mutual funds fail to perform as well as their benchmark indexes (in large part due to the fees they charge). So give index funds some consideration, or learn more about stock picking and investing. The more you know, the more money you'll likely make.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Selena Maranjian owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.