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Investing might feel overwhelming at first, but it becomes much simpler once you take the plunge. However, there are still mistakes you can make, and these errors can be expensive. Here are some of the most common ones to watch out for.
Openfolio is a platform that allows you to benchmark your investment strategy against others. They analyzed the results of 3,000 public users (you can keep your profile private on the site). They compared their performance to the returns of equivalent target date funds. A target date fund offers a predictable return within a set timeframe.
In simple terms, Openfolio assessed how much those investors could have gained if they had invested differently compared to what they actually earned.
Among the investors who underperformed, several common mistakes were identified:
They invested in individual stocks, exposing themselves to greater volatility.
By not diversifying into funds and ETFs, they had limited exposure to the broader market.
They kept too much cash on hand, resulting in under-investment.
Openfolio shared the following:
We found that over half of our users underperformed their expected target date retirement return of about 7% – and
24% of users lost money in 2014
. This was during a year when the S&P 500 rose by 13.6%.
Of course, the limitations of their approach should be noted. For example, it doesn’t necessarily account for long-term performance. Over the years, some of these portfolios could have recovered. Still, Openfolio’s results align with the common advice from most investment professionals—invest in broad funds and ensure diversification.
For further insights, visit their full post.
