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5 investing mistakes you may be making right now

Don't ignore these important factors.

Key takeaways

  • Risk is an essential part of investing, and investors should have the appropriate amount of risk in their portfolio so they don't feel compelled to flee the market when volatility arises.
  • Regular rebalancing and tax-management techniques may have a substantial impact on a portfolio's long-term performance.
  • Investors who have neither the time nor inclination to actively maintain their portfolios may consider whether it might be worth it to engage with a professional manager.

Investing can, at times, seem complex and confusing, and you may often be wondering whether or not you're doing everything you can to help keep things on track—or whether something you're doing may be hurting your ability to achieve your goals.

Here are 5 things you may be doing that might be having a detrimental effect on your portfolio, and some thoughts on how you might be able to turn things around.

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1. Getting out when the going gets tough

When markets become volatile or experience significant declines, it's natural to want to try to cut your losses and retreat to what seems like safe territory. But rather than preserving your wealth, you may actually be undermining the long-term growth potential of your portfolio.

"I've helped a lot of people with their financial plans," says Matt Bullard, a regional vice president for managed solutions at Fidelity, "and one thing that I've found is that big market events that drive headlines have generally had less of an impact on an investor's ability to reach their goals than the emotional decisions they make in response to those events."

In general, market declines have tended to be relatively shallow and short-lived compared to expansionary periods. Since 1950, markets have risen an average of 15% per year during expansions—and even 1% per year during recessions.1 So even when things seem most dire, there's still a chance for positive returns.

Furthermore, because it's not possible to predict exactly when the market may shift from negative to positive, there's a chance that you may end up missing out on a rally or recovery when it occurs if you were to take your money out of the market. Being uninvested for even a short time could have a profound impact: For instance, a hypothetical investor who missed just the best 5 days in the market since 1988 could have reduced their long-term gains by 37%.2

That's why it's so important to have a thoughtful, well-established plan in place to help you resist the urge to overreact to short-term volatility and uncertainty.

2. Taking on too much (or too little) risk

Though the very idea of "risk" can be scary, it's an essential part of investing. The amount of risk you decide to take on could determine how much growth you may be able to achieve in your portfolio and how much volatility you may need to endure to get there.

"Being far too conservative could be just as damaging as being far too aggressive," says Bullard. "If you're too conservative, you may not have the growth potential you need to reach your goals or even to outpace inflation. On the other hand, if you have too much risk, you'll potentially experience a lot more market volatility, which could lead you to jump out of the market at a bad time."

While there are no guarantees in investing, the key is to take on just enough risk to give your portfolio a chance of reaching your long-term goals, but not so much that it introduces enough volatility to scare you into withdrawing from the market. And one way to achieve that is by diversifying your portfolio, investing in a mix of different asset classes that may behave differently in different market conditions—that way, when some of your investments are down, others may be up, helping to smooth out the bumpiness in the market that can be so disconcerting.

This chart shows the average annual return for various asset mixes, from a conservative asset mix to an asset mix that is entirely invested in stocks. Asset mixes that include more stock tend to be riskier but have historically offered higher potential annual returns.
Important information about performance returns. Performance cited represents past performance. Past performance, before and after taxes, does not guarantee future results and current performance may be lower or higher than the data quoted. Investment returns and principal will fluctuate with market and economic conditions, and you may have a gain or loss when you sell your assets. Your return may differ significantly from those reported. The underlying investments held in a client's account may differ from those of the accounts included in the composite. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. See footnotes for additional details.

How your assets are allocated across these different asset classes can provide a solid foundation upon which your portfolio may be able to grow over time. It can be a major factor in long-term performance: In fact, up to 90% of the variability of a fund's return over time can be explained by how its assets are allocated.3

3. Not rebalancing your portfolio regularly

Asset allocation is not a one-and-done exercise or something you can "set and forget." Over time, the appreciation and depreciation of your investments may result in your portfolio drifting from your initial allocation. As this happens, the amount of risk you're exposed to could change in ways you may not have expected.

For example, consider a hypothetical portfolio that begins with an asset allocation of 70% stocks and 30% bonds. If over the course of 6 months, stock values were to surge and bond values were to decline, that portfolio might end up closer to something like 80% stocks and 20% bonds—a much riskier allocation—just due to market activity. It can work the other way as well: Were stocks to dip to 60% and bonds to rise to 40%, the portfolio may end up being more conservative than the investor initially intended.

This chart shows how a hypothetical investor would fare in two scenarios: buying and holding assets and rebalancing their portfolio quarterly. Over time, portfolios that were not rebalanced experienced more risk than those that did so on a quarterly basis.

Hypothetical example. For illustrative purposes only. Actual performance results may vary, perhaps significantly, from the performance results shown. This chart's hypothetical illustration uses historical monthly performance from June 30, 2014 through June 30, 2024.

This chart is for illustrative purposes only and is not indicative of any investment. A portfolio that is not diversified within asset classes may experience different levels of risk. Portfolio risk is measured using standard deviation, which is a statistical measure of how much a return varies over an extended period of time. The more variable the returns, the larger the standard deviations. Investors may examine historical standard deviation in conjunction with historical returns to decide whether an investment's volatility would have been acceptable given the returns it would have produced. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. Standard deviation does not indicate how an investment actually performed, but it does indicate the volatility of its returns over time. Standard deviation is annualized. The returns used for this calculation are not load adjusted.

Average risk for the Buy and Hold portfolio and the Quarterly Rebalanced portfolio is the average of the monthly rolling 3 year standard deviations for the period in the chart.

Portfolio allocations: U.S. Stocks: S&P 500 Index – 42%; International Stocks: MSCI ACWI ex USA Index (Net MA Tax) – 18%; Bonds: Bloomberg: U.S. Aggregate Bond Index – 35%; Short Term: Bloomberg U.S. 3‐Month Treasury Bellwethers Index – 5%. The holdings of the Quarterly Rebalance portfolio were rebalanced on a quarterly basis back to the Initial Index Weightings for each Primary Asset Class. The holdings of the Buy and Hold portfolio were never rebalanced.

Unless the investor proactively monitors and reallocates assets, perhaps by adding more funds to the account in the desired asset class or moving assets from one class to another, they could potentially experience more volatility than they are comfortable with or less growth than they need to help achieve their goals.

"Being in charge of your own investment strategy is an important responsibility," says Bullard. "Time goes by very fast. You may look at your portfolio today and see your ideal asset allocation, but by the end of the month things may have changed, because the markets are moving. Nothing in life is maintenance-free—especially our investment portfolios. It can take a lot of work."

4. Paying too much in taxes

Taxes are a part of life, but nothing says you need to pay any more than is required of you. And yet, many investors may do just that because they don't realize that there are techniques they can employ to help invest more efficiently and potentially reduce their overall tax burden.

"Most investors don't realize how much they're paying in taxes," says Bullard. "Capital gains distributions from mutual funds, for example, can surprise investors when the tax bill arrives."

Cutting your tax bill can have a big impact on your portfolio over the long term, by allowing you to keep more of your money and keep it invested, where it can potentially benefit from compounding growth in the market.

Techniques such as tax-loss harvesting or tax-efficient asset location, which places particular types of investments in the accounts most suitable for their tax treatment, can potentially pay off. In fact, the average client with a Personalized Portfolios professionally managed account using tax-smart strategies4 could have save $4,137 per year in taxes.5

5. Not seeking help when you need it

Self-directed investing works for many people, but if you’re having trouble staying the course and keeping your emotions in check, consider working with a trusted professional. Doing so may be more likely to lead to a better outcome in the long term. For example, studies have estimated that professional financial advice can add up to 5.1% to portfolio returns over the long term, depending on the time period and how returns are calculated.6

The truth is, mismanaging your portfolio has a cost. And whether the mismanagement is the result of an honest mistake, an understandable overreaction, or a simple oversight, ultimately the cost is coming out of your pocket. That's why some investors are more comfortable engaging with a professional investment manager who, for a fee, can oversee many of these important investing duties and provide investors with a backstop of support and guidance that may be able to help them weather the difficulties they encounter on their path to their goal.

"You really need to ask yourself 3 questions," says Bullard. "Do I have the skills to do this? Do I have the time to do this? And, maybe most importantly, do I want to do this? If the answer is 'no' to any or all of those, it may be worth seeking professional help. Your family and your goals deserve it." Even if you feel more comfortable managing your portfolio yourself, you may still benefit from meeting with a financial professional from time to time to get another perspective on your approach to investing.

Don't overcomplicate things

Life is complicated enough as it is. There's no need to make it any more complicated than it needs to be. With just a little more attention to these important portfolio practices and reaching out for professional help when you need it, you may be able to help ensure that these potential mistakes don't keep you from reaching your important investing goals.

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1. This is based on the cumulative percentage return of a hypothetical investment made in the noted index during periods of economic expansions and recessions. Index returns include reinvestment of capital gains and dividends, if any, but do not reflect the impact of taxes, fees, or expenses, which would lower these figures. This return information is not intended to imply any future performance of the investment product. Past performance is no guarantee of future results. It is not possible to invest directly in an index. All indexes are unmanaged. Source: Bloomberg, S&P 500 Index total return for 1/1/1950–12/31/2022. Recession and expansion dates are defined by the National Bureau of Economic Research (NBER). Your own investment experience will differ, including the possibility of losing money.

2. Hypothetical growth of $10,000 invested in the S&P 500 Index, January 1, 1988–December 31, 2023. The hypothetical example assumes an investment that tracks the returns of the S&P 500® Index and includes dividend reinvestment but does not reflect the impact of taxes, which would lower these figures. There is volatility in the market, and a sale at any point in time could result in a gain or loss. Your own investing experience will differ, including the possibility of loss. You cannot invest directly in an index.

3. "Does Asset Allocation Policy Explain 40%, 90% or 100% of Performance?”, Roger G. Ibbotson and Paul D. Kaplan, Financial Analysts Journal, January/February 2000. Diversification and asset allocation do not ensure a profit or guarantee against loss.

4. Tax-smart (i.e., tax-sensitive) investing techniques, including tax-loss harvesting, are applied in managing certain taxable accounts on a limited basis, at the discretion of the portfolio manager, primarily with respect to determining when assets in a client's account should be bought or sold. Assets contributed may be sold for a taxable gain or loss at any time. There are no guarantees as to the effectiveness of the tax-smart investing techniques applied in serving to reduce or minimize a client's overall tax liabilities, or as to the tax results that may be generated by a given transaction.

5. Important information about the methodology and assumptions and their related risks and limitations used in calculating this figure. Tax-loss harvesting is one of several tax-smart investing techniques we apply in managed portfolios. Tax savings will vary from client to client. In any given year it may offer significant benefits during volatile markets. Past performance is no guarantee of future results. Factors that could impact the value of our tax-smart investing techniques include market conditions, the tax characteristics of securities used to fund an account, client-imposed investment restrictions, client tax rate, asset allocation, investment approach, investment universe, the prevalence of SMA sleeves and any tax law changes. This analysis is based on the performance of all accounts in good order within investment strategies (offered through Fidelity® Wealth Services) within taxable account registrations from 1/1/2014 for the Total Return Blended strategy, and from 1/28/2019 for Total Return Fidelity-Focused and Index-Focused strategies and the Defensive approach (when tax-smart investment management capabilities were introduced) , and from 06/30/2022 for Total Return Sustainable investment strategies through 12/31/2023. The analysis includes calculating the average of each year’s average account’s capital gains tax savings over the past ten years. We estimate potential capital gains tax savings by multiplying each harvested tax loss by the applicable short- or long-term capital gains tax rate for each client account at the end of each year. The average account balance is $709,108, which is the average of each year’s average account balance over the past ten years. The average balance has decreased over the course of the past ten years as we have seen a growth in the number of accounts after lowering minimums in recent years.
Our after-tax performance calculation methodology uses the full value of harvested tax losses without regard to any future taxes that would be owed on a subsequent sale of any new investment purchased following the harvesting of a tax loss. That assumption may not be appropriate in all client situations but is appropriate where (1) the new investment is donated (and not sold) by the client as part of a charitable gift, (2) the client passes away and leaves the investment to heirs, (3) the client’s long-term capital gains rate is 0% when they start withdrawing assets and realizing gains, (4) harvested losses exceed the amount of gains for the life of the account, or (5) where the proceeds from the sale of the original investment sold to harvest the loss are not reinvested. Our analysis assumes that any losses realized are able to be offset against gains realized inside or outside of the client account during the year realized; however, all capital losses harvested in a single tax year may not result in a tax benefit for that year. Remaining unused capital losses may be carried forward to offset up to $3,000 of ordinary income per year. It is important to understand that the value of tax-loss harvesting for any particular client can only be determined by fully examining a client’s investment and tax decisions for the life the account and the client, which our methodology does not attempt to do. Clients and potential clients should speak with their tax advisors for more information about how our tax-loss harvesting approach could provide value under their specific circumstances.

6. Depending on the time period and how returns are calculated. Value of advice sources: Envestnet’s “Capital Sigma: The Advisor Advantage” estimates advisor value add at an average of 3% per year, 2023; Russell Investments 2023 Value of a Financial Advisor estimates value add at approximately 5.12%; and Vanguard, “Putting a value on your value: Quantifying Vanguard Advisor’s Alpha®,” 2022, estimates lifetime value add at an average of 3%. The methodologies for these studies vary greatly. In the Envestnet and Russell studies, the paper sought to identify the absolute value of a set of services, while the Vanguard study compared the expected impact of advisor practices to a hypothetical base-case scenario.



* The above example (of various asset allocations) is for illustrative purposes only and does not reflect actual Personalized Portfolios data. Asset mix performance figures are based on the weighted average of annual return figures for certain benchmarks for each asset class represented. Historical returns and volatility of the stock, bond, and short-term asset classes are based on the historical performance data of various indexes from 1926 through 12/31/23 data available from Morningstar. Note: Foreign stock represented by IA SBBI US Large Stock TR USD 1926–1969 (IA SBBI US Large Stock TR USD was used to represent foreign stocks prior to 1970), MSCI EAFE 1970–2000, MSCI ACWI Ex USA 2001–12/31/23. Domestic stocks represented by IA SBBI US Large Stock TR USD Ext 1926–1986, Dow Jones U.S. Total Market 1987–12/31/23. Bonds represented by U.S. Intermediate-Term Government Bond Index 1926–1975, Bloomberg U.S. Aggregate Bond 1976–12/31/23. Short term represented by 30-day U.S. Treasury bills 1926–12/31/23. Although past performance does not guarantee future results, it may be useful in comparing alternative investment strategies over the long term. Performance returns for actual investments will generally be reduced by fees and expenses not reflected in these investments' hypothetical illustrations.



†Standard deviation does not indicate how the securities actually performed but indicates the volatility of their returns over time. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. The chart does not represent the performance of any Fidelity fund. You cannot invest directly in an index. Stock prices are more volatile than those of other securities. Government bonds and corporate bonds have more moderate short-term price fluctuation than stocks but provide lower potential long-term returns. US Treasury bills maintain a stable value if held to maturity, but returns are generally only slightly above the inflation rate. The purpose of the asset mixes is to show how asset mixes may be created with different risk-and-return characteristics to help meet an investor's goals. You should choose your own investments based on your particular objectives and situation. Remember that you may change how your account is invested. Be sure to review your decisions periodically to make sure they are still consistent with your goals.

Past performance is no guarantee of future results.

Investing involves risk, including risk of loss.

Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Generally, among asset classes stocks are more volatile than bonds or short-term instruments and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Although the bond market is also volatile, lower-quality debt securities including leveraged loans generally offer higher yields compared to investment grade securities, but also involve greater risk of default or price changes. Foreign markets can be more volatile than U.S. markets due to increased risks of adverse issuer, political, market or economic developments, all of which are magnified in emerging markets.

Fidelity® Wealth Services provides non-discretionary financial planning and discretionary investment management through one or more Personalized Portfolios accounts for a fee. Advisory services offered by Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, FBS, and NFS are Fidelity Investments companies.

 Market indexes are included for informational purposes and for context with respect to market conditions. All indexes are unmanaged, and performance of the indexes includes reinvestment of dividends and interest income, unless otherwise noted. Review the definitions of indexes for more information. Please note an investor cannot invest directly into an index. Therefore, the performance of securities indexes do not incorporate or otherwise reflect the fees and expenses typically associated with managed accounts or investment funds.

IA SBBI US Large Stock Index tracks the monthly return of S&P 500®. The history data from 1926 to 1969 is calculated by Ibbotson. The S&P 500® Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. Dow Jones US Total Stock Market Index is a float-adjusted market capitalization–weighted index of all equity securities of US headquartered companies with readily available price data.

MSCI EAFE Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in developed markets, excluding the US & Canada.

MSCI ACWI (All Country World Index) ex USA Index is a market capitalization-weighted index designed to measure the investable equity market performance for global investors of large and mid-cap stocks in developed and emerging markets, excluding the United States.

Bloomberg US Aggregate Bond Index is a broad-based, market-value-weighted benchmark that measures the performance of the investment grade, US dollar denominated, fixed-rate taxable bond market. Sectors in the index include Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.

The Morgan Stanley Capital International All‐Country World Index (MSCI ACWI ex USA Index (Net MA Tax)) is a market capitalization–weighted index designed to measure the investable equity market performance for global investors of large‐ and mid‐cap stocks in developed and emerging markets, excluding the U.S. Index returns are adjusted for tax‐withholding rates applicable to U.S.‐based mutual funds organized as Massachusetts business trusts.

The IA SBBI US Intermediate Term Government Bond Index: The index measures the performance of a single issue of outstanding US Treasury note with a maturity term of around 5.5 years. It is calculated by Morningstar and the raw data is from Wall Street Journal.

The Bloomberg U.S. 3-Month Treasury Bellwether Index is a market value-weighted index of investment-grade fixed-rate public obligations of the U.S. Treasury with maturities of 3 months, excluding zero coupon strips.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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