5 Costly Mistakes to Avoid With Your Investments in 2024

Investing might seem complicated, but it's actually not that hard to get right. It starts with choosing quality investments. Index funds and target-date funds are two good options available with the top stock brokers. From there, if you keep it simple by investing regularly, you'll set yourself up for success.

The biggest challenge is avoiding self-inflicted problems. Some investing mistakes can eat into your returns or cause you to lose money. Here's what to avoid so you can keep your investments on track next year.

1. Selling because the market is down

It'd be nice if our investments always went up in value, but that's not realistic. The stock market goes through its down periods. Sometimes it lasts a few days, sometimes it's a few weeks, or it can be over a year.

While the economy is doing well right now, no one knows what will happen in 2024. If the stock market drops, don't panic and sell your investments. This is one of the costliest mistakes that investors make.

If you sell because the market is down, you'll likely sell low, which is exactly what you don't want to do. Not only will you be getting a lower price for your investments, you'll miss out if they bounce back later.

2. Chasing short-term profits

People generally look at investing as either a long-term endeavor or a get-rich-quick scheme. The investors who take a long-term approach tend to do much better.

As touched on earlier, the stock market has its ups and downs. But overall, its average return is about 10% per year, and that goes back decades. That's great if you're patient and don't mind waiting for positive results. If you invest $500 per month for 40 years, and get a 10% return, you'll finish with $2.66 million. Only $240,000 of that will be money you contributed.

If you're trying to make fast cash, it's much more difficult. Those who are after bigger returns need to devote more time to investing and take on a lot more risk. They may try day trading, options, cryptocurrencies, and other high-risk approaches. It's easy to lose money this way. You're more likely to be successful if you're more patient.

3. Not investing consistently

To get the best results with investing, make it a habit. Figure out an amount you can afford to invest per month or per pay period. I'd recommend starting with 10% of your income if possible, but you can do more or less depending on what works for you. Most importantly, commit to investing that amount and stick with it.

The reason this matters is because it ensures you're consistently adding to your investments. If you don't have a plan, you probably won't invest as often. There may be months where you spend all your money, or you're not sure if it's a good time to invest. The more this happens, the more it cuts into your investments, and ultimately, the amount of money you make.

4. Taking on too much risk

There's always some risk involved in investing. But there's a huge difference between the risk of putting your money into the S&P 500 (500 of the largest publicly traded companies) compared to putting your money into Dogecoin (DOGE).

There are a couple of ways to reduce your risk while investing:

• Buy investment funds that invest your money in a large number of stocks. S&P 500 and total stock market mutual funds are two such options.
• Invest in 25 or more companies across a variety of market sectors. This is more time-consuming, so it's only for those who want to pick stocks and have full control over their portfolios.

It's OK to dabble in higher-risk investments. But these should be a comparatively small portion of what you own -- 5% to 10% at most of your portfolio. For example, I've done a little bit of options trading and cryptocurrency investing. Most of my money is in a total stock market fund with Vanguard, though.

5. Overpaying in fees

Investing fees often seem small, but they can take a big bite out of your portfolio. Earlier, you saw how $500 per month, investing for 40 years at a 10% annual return, would result in a balance of $2.66 million.

What if you were paying a financial advisor a 1% fee to manage your portfolio? You'd end up with $2.03 million. That's over $600,000 going to someone else, just so they will handle your investments for you.

Keep your investing fees to a minimum. Many investment funds, such as S&P 500 funds, offer returns equal to or better than what you'd get with a financial advisor. And you can find these funds with annual fees of under 0.1%. There's no reason to pay 1%, and it ends up costing you a lot more than 1% because of how it impacts your returns over time.

Successful investing is all about having a plan, managing risk, and avoiding costly fees. If you can do that, and you're a long-term investor, you'll do well for yourself.