We may earn a small commission if you sign up for a service or product from this page. This does not affect our rankings and it does not cost you anything. Learn more about how we make money and our review process on our advertising disclosure page.
Most investing mistakes aren’t exotic. They’re not some obscure derivatives trade gone sideways or a missed signal on a candlestick chart. They’re the same five mistakes, made by the same people, draining the same retirement accounts year after year – and they cost retail investors a fortune.
The good news: every one of them is fixable. The better news: a decent robo advisor automates the fixes for the first three before you’ve even logged in. Here’s what each mistake actually costs in dollars, and the easiest way to stop making it.
1. Trying to time the market
The mistake: You watch the news, decide a crash is coming, and pull out of the market. Or you sit on cash waiting for “the dip” that never comes at the level you wanted. Either way, you’re playing a game institutional traders with PhDs and microsecond data feeds lose at.
What it costs: JPMorgan’s analysis of the S&P 500 from 2003 to 2022 shows what happens when you miss the best days. A $10,000 investment left alone grew to about $64,800. Miss just the 10 best days over those 20 years and you ended up with around $29,700 – less than half. Miss the 20 best days and you’re at $17,800. Miss the 30 best and you’ve lost money in nominal terms before inflation even gets involved.
The brutal part: seven of the ten best days in any given decade fall within two weeks of the ten worst days. To dodge the bad ones, you have to dodge the good ones too. Nobody can do that reliably.
The fix: Set up automatic recurring contributions and stop checking your portfolio when CNBC’s chyron turns red. Dollar-cost averaging works because it removes your opinion from the process. A robo advisor handles this by default – you fund the account, it buys, it doesn’t ask you whether you think the Fed is bluffing.
2. Paying high fees
The mistake: You hire a traditional financial advisor charging 1% of assets under management. He puts you in actively managed mutual funds with a 0.50% expense ratio. You now pay 1.5% per year, every year, on every dollar you have invested, forever.
What it costs: Take $500,000 invested for 20 years at a 7% gross annual return. With no fees, you end up with about $1,934,000. Pay 1.5% in fees and that drops to roughly $1,485,000. The gap is about $449,000. Almost half a million dollars – gone, not to bad market timing or stock-picking errors, but to fees you agreed to once and never thought about again.
And here’s the kicker: most active mutual fund managers underperform their benchmark index over any 10-year window. You’re paying a premium to get worse results than a free index fund would have given you.
The fix: Use low-cost index funds or ETFs (expense ratios under 0.10% are easy to find). If you want guidance, a robo advisor typically charges 0.25% all-in – one-sixth of the traditional setup. Even Vanguard’s hybrid advisor service comes in around 0.30%. The trade-offs are worth understanding, but the math on fees alone makes the case.
3. Not rebalancing
The mistake: You set up a sensible 60/40 portfolio – 60% stocks, 40% bonds – and then you forget about it. Stocks rip for five years. Now your portfolio is 75/25 because the equity side grew faster. You didn’t choose 75/25. You’re just sitting in it because nobody pushed the button.
What it costs: A 75/25 portfolio loses substantially more than a 60/40 in a bad year. In 2008, the S&P 500 dropped about 37% while aggregate bonds returned around 5%. A 60/40 portfolio lost roughly 20%. A 75/25 lost about 27%. On a $500,000 account, that’s a $35,000 difference – in a single year, on a drift you never consciously chose.
Worse, the failure to rebalance breaks the entire point of asset allocation. You picked 60/40 because that’s the risk level you can stomach. Drift quietly cranks the risk dial up without telling you, right up until the next drawdown shows you what you signed up for.
The fix: Rebalance at least annually, or whenever any allocation drifts more than 5 percentage points from target. You can do it yourself with a spreadsheet and a free afternoon. Or use a robo advisor that does automatic rebalancing in the background, often using new contributions to top up the underweight side so you don’t trigger taxable sales.
4. Sitting in cash too long
The mistake: You sold during a scary stretch, or you got a windfall and parked it in a high-yield savings account “just until things calm down.” That was 18 months ago. The market is up 30%. You’re still waiting for a better entry point.
What it costs: Bull markets average 60+ months of duration. Bear markets average around 13. The default direction of the market is up, and cash earning 4% looks great until you notice equities did 22% that same year. On $100,000 sitting out a single 20% market year, that’s $20,000 in opportunity cost. Multiply by however long your “wait for a better entry” actually lasts.
Vanguard ran the numbers on lump-sum investing versus dollar-cost averaging into the market and found that lump-sum investing beats DCA about two-thirds of the time across historical 10-year windows. The market goes up more often than it goes down. Sitting it out is the expensive choice.
The fix: Keep 3-6 months of expenses in cash for emergencies. Everything else with a 5+ year horizon belongs invested. If you can’t bring yourself to lump-sum it, set up automatic weekly or monthly contributions and let dollar-cost averaging handle your nerves.
5. Underdiversifying
The mistake: You pick 10 stocks you’ve heard of and call it a portfolio. Or worse, you put 40% of your net worth in your employer’s stock because you “know the company.” Single-stock concentration has killed more retirements than every market crash combined.
What it costs: A research paper by Hendrik Bessembinder at Arizona State found that from 1926 to 2019, only 4% of US stocks accounted for all of the net wealth creation above T-bills. The other 96% collectively did nothing or lost money. If you’re picking 10 stocks, the odds you’ve picked the right ones are roughly the odds of being struck by useful lightning.
Think Enron, Lehman Brothers, GE in the 2010s, every cannabis stock from 2019, half the SPACs from 2021. Companies you would have sworn were safe. Employees who held company stock through Enron’s collapse lost their jobs and their retirement accounts in the same week.
The fix: A simple 3-fund portfolio – US total market index, international total market index, total bond market index – holds thousands of companies across dozens of countries. Compare that to “10 hot stocks I picked.” The 3-fund version captures market returns at near-zero cost and survives any single company blowing up. Most robo advisors build something similar by default, weighted to your risk profile.
Honorable mentions (the mistakes that compound the big five)
Panic selling. Locking in losses during a drawdown turns a paper loss into a permanent one. The 2020 COVID crash recovered in about five months. Anyone who sold in March 2020 missed the fastest bull market in history starting in April.
FOMO-buying crypto tops. Bitcoin peaked near $69,000 in November 2021, then dropped to $16,000 a year later. Retail piles in at the top, capitulates at the bottom, and gets to do it all again the next cycle.
Ignoring taxes. Holding a stock 364 days instead of 366 can turn a 15% long-term capital gains rate into a 24%+ short-term rate. Tax-loss harvesting can save thousands a year on a taxable account. Most robos do it automatically; most retail investors never touch it.
Never starting. The most expensive mistake of all is keeping it all in a checking account for a decade because you’re “going to research this properly soon.” A 25-year-old who invests $300/month and stops at 35 ends up with more at 65 than someone who invests $300/month from 35 to 65. Compounding doesn’t wait.
How to know if you’re making these mistakes
Run this checklist on your current setup:
- Have you bought or sold based on a news headline in the last 12 months? (Mistake #1)
- Do you know your all-in annual fees as a percentage? If the answer is “no” or “around 1%,” you’re paying too much. (Mistake #2)
- What’s your current stock/bond split, and does it match what you intended? (Mistake #3)
- Is more than 6 months of expenses sitting in cash or a savings account? (Mistake #4)
- Do any 3 stocks make up more than 20% of your portfolio? (Mistake #5)
One yes is fixable in an afternoon. Three yeses and you’ve got real money on the table.
The shortcut
Mistakes 1, 2, and 3 – market timing, high fees, and rebalancing failures – are exactly what robo advisors were built to solve. Low flat fees (around 0.25%), automatic contributions that ignore your mood, and rebalancing handled in the background mean three of the five biggest wealth-killers stop being your problem the moment you fund the account.
If you’re new to this, start with our guide to the best robo advisors for beginners. If you want the full lineup ranked, head to the robo advisors hub. Either way, the goal is the same: stop hand-rolling the five mistakes that quietly cost most retail investors hundreds of thousands of dollars over their investing lifetime.
Frequently asked questions
What’s the biggest mistake new investors make?
Not starting. The second-biggest is starting and then trying to time entries and exits. Both stem from the same problem – treating investing as something that requires perfect conditions. It doesn’t. Automatic monthly contributions into a diversified low-cost portfolio beats almost every “smart” strategy a beginner will try.
How much does timing the market actually cost?
According to JPMorgan, missing just the 10 best market days over a 20-year span cuts your returns roughly in half. Missing the 20 best days takes it to about a quarter of the buy-and-hold return. Because the best days cluster near the worst days, you can’t avoid one without sacrificing the other.
Is it bad to keep money in cash?
For an emergency fund of 3-6 months of expenses, no. For long-term money you’ll need in 5+ years, yes. Cash returns rarely beat inflation by enough to matter, and they almost never beat a diversified stock portfolio over any reasonable time horizon. Sitting in cash “waiting for a better entry” is the expensive default position.
Why does diversification matter?
Because individual companies fail, and you can’t reliably predict which ones. Research shows only about 4% of US stocks have generated all the net wealth creation in the market above T-bills since 1926. Owning the whole market (or close to it) means you automatically capture the winners without having to guess which they’ll be.
Can robo advisors prevent investing mistakes?
They prevent three of the big five automatically – market timing (through scheduled contributions), high fees (through flat low-cost pricing), and rebalancing failures (handled in the background). They can’t stop you from withdrawing in a panic, but they remove most of the friction that leads to the other expensive choices.
What should I do if I’ve made these mistakes already?
Start by fixing the cheapest one to fix: your fee structure. Move from high-fee actively managed funds to low-cost index funds or a robo advisor and you’re done in an afternoon. Then rebalance your allocation back to target. Then set up automatic contributions. The past is sunk cost – the next 20 years aren’t.
