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7 things financial pros say you should never do with your investments

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Investing isn’t just for experts. It’s for everyone, whether you have $5 or $50,000. Regardless of how much money you have, though, it can be easy to fall into investment traps, making “process” mistakes that can cost you serious money. These are some major no-nos to avoid.

Bankrate spoke with two experts on what you should never do with your investments.

Mistake No. 1: Comparing yourself to others

It’s easy to look at what others are doing and feel defeated when you aren’t at the same level. But investing is personal. No one has your income, expenses, job, personal responsibilities and other factors. All of those play a part in how your investments will perform.

“One of the biggest mistakes is trying to compare your investment returns to someone else and trying to get the same returns without knowing all of the surrounding information,” says Kevin Matthews II, author and founder of BuildingBread, an investing education company. “There are a lot of factors that determine how much you can make in the stock market, including when you start investing, how long you hold, and the amount you start with.”

Mistake No. 2: Making emotional decisions

Investing can be personal, but remember that a lot of what you’re doing is rooted in making business moves. You’re making long-term investments, but it’s easy to get emotional when a stock or the broader market falls and you lose money in the short term. Avoid rash decisions as much as possible and skip becoming emotional when things don’t go as planned.

“The more you pay attention to business news headlines and your account balance, the more likely you are to act on emotion,” says Dani Pascarella, CFP, founder and CEO of OneEleven, a financial planner. “Turn off the TV and check your accounts on a less frequent cycle, like once per month. Educating yourself on investing and economic cycles will also help you to feel confident about your investments and ignore all of the noise.”

Mistake No. 3: Trying to time the market

It’s common to hear the advice of “buy low, sell high.” But how do you know when “low” is really low enough to get in on the action? Some investors try to “time the market” by buying and selling their investments at what seem like opportune moments.

“The problem with [trying to time the market] is that identifying the perfect time is nearly impossible and the perfect time may never arrive,” Pascarella says. And Matthews agrees.

“Attempting to time the market to avoid a loss and jump back in at the perfect time is nearly impossible to do consistently,” he says. “This is because like a slot machine you have to get three things right to win: When to get out, what to buy, and when to get back in. Missing out on just one of those can have a drastic impact on your portfolio.”

Rather than spend time trying to time the market, Pascarella says to put a fixed dollar amount into your investment accounts regularly (like monthly) and ignore whatever the markets are doing at that moment. Committing to this type of investing — called dollar cost averaging — means you won’t act on impulse when it comes to where your money goes.

Mistake No. 4: Ignoring your other obligations

Investing should be made with money that isn’t needed for anything else, like expenses and debt. While it’s important to invest as soon as you can, putting off other responsibilities won’t help your investments now or in the long run.

“Without a dedicated emergency fund, you might be forced to sell investments at a loss when something unexpected happens to try and cover the expense,” Pascarella says. “If you have high-interest credit card debt, it’s likely the interest you are paying is double what an investment portfolio would generate for you in a given year.”

It’s nice to put as much extra cash towards your investments as you can to build wealth, but the sooner you pay off debt, the more money you’ll have to invest.

Mistake No. 5: Taking a distribution instead of a rollover

When you move jobs, your retirement plan doesn’t necessarily move with you — at least not right away. You’ll have to contact the manager of your old employer’s plan to work out a rollover to move your retirement plan into a new account, whether that’s into a 401(k) at your new employer or an IRA. It’s tedious work but usually worth it, because the alternative could be expensive.

“When you move from one job to another, you have the option of taking your money with you,” Matthews says. “But you want to do so as a rollover to an IRA which is a non-taxable event compared to withdrawing the money and paying taxes and a potential penalty.”

A distribution counts as an early withdrawal, triggering a 10 percent penalty on top of any other taxes you might owe. That’s less money in your investment accounts, and you’ll owe the government money when you go that route.

Mistake No. 6: Missing employer matches

If you aren’t sure whether your employer offers a match on your 401(k) contributions, you might be missing out on maximizing your investments. Many employers offer one, but Matthews says that many people don’t take advantage of it, leaving free money behind.

“The match from your employer is likely much higher than any return that you would get from the market that year,” he says. “For example, a dollar-for-dollar match is an instant 100 percent return on your contribution. It would take years for your investment portfolio to grow that much.”

Ask your human resources department about contribution matches and how you can start taking advantage of them. If your company doesn’t offer one, your inquiry might be the spark that lights the fire to start employer matching as an employee benefit.

Mistake No. 7: Not actually investing your investment account

It’s a big step to open an investment account. But if you aren’t actually investing that money, then it’s not going to grow and instead will just sit around as cash.

“There is a difference between your investing accounts and your actual investments,” Matthews says. “You’ll want to avoid the mistake of opening an account, depositing money, and letting that money sit without putting it to work by selecting an investment.”

Pascarella says she’s had clients that did go through with setting up and even contributing to an investment account but then didn’t actually select investments for that money.

“Remember to make investment selection part of your process,” she says. “Reviewing your portfolio holdings and performance monthly is also a great practice that will allow you to catch oversights like this quickly.”

Bottom line

Investing can seem scary, especially if you don’t know how to start and you have a lot of experts telling you what to do. But making the most of your investments requires a bit of legwork and creating healthy investment habits.

Remember you’re working towards making the most of your investments, so try to avoid acting on emotions. Once you’ve made the leap to opening an account and even setting up contributions, make sure your money is working hard for you and check on your accounts regularly, whether it’s monthly, quarterly or annually. If you’re unsure if you’re making the right choices, consider reaching out to a financial expert, like a planner or advisor, to review your investments with you.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.

Written by
Dori Zinn
Contributing writer
Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy.
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Senior investing and wealth management reporter