As a financial advisor and aspiring young investor, I often get questioned (and wonder myself) what exciting and exclusive things I should be doing to build wealth. However, what I’ve found to be true is that the more powerful and impactful question is, “What should I NOT be doing?”

If we can avoid mistakes, our odds of long-term success are dramatically higher. In baseball terms, we may not hit a home run often, but our overall batting average will be higher.

Here are four common investing pitfalls that you can add to your NOT to-do list:

1) Not Letting Your Money Work For You

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” — Robert G. Allen

A recent article in the Wall Street Journal highlighted a concerning trend: nearly a third (28%) of individuals who rolled savings into IRAs at Vanguard in 2015 still had the balance sitting in cash seven years later. This means that their money was not working for them and missed out on significant market gains.

I see two possible reasons for this:

  1. a) They simply forgot about the money and assumed they were invested, or
  2. b) They were scared to get back into the market due to negative headlines.

Remember, there will always be scary headlines. The news often focuses on negative events because they attract more attention. However, staying out of the market due to fear can significantly hinder your long-term growth potential.

2) Trying To Time The Market

“Time in the market beats timing the market.” – Ken Fisher

Timing the market is incredibly challenging because it requires two correct decisions: when to get out before a downturn and when to get back in at the bottom. This task is nearly impossible to achieve consistently. Some investors may get lucky occasionally, but do you want to rely on luck to build wealth? I surely do not.

A better approach is to stay invested and focus on the long term. Market fluctuations are inevitable, but the overall trend has historically been upward.

3) Choosing Concentration Over Diversification

Concentration may create wealth, but diversification keeps wealth.

Many investors mistakenly believe that owning an index fund or multiple stocks means they are diversified. True diversification involves holding a variety of asset classes. This includes not just different stocks but a mix of large-cap, mid-cap, small-cap, international stocks, bonds, and other asset categories. Diversifying across these various asset classes helps mitigate risk and provides a more stable foundation for long-term wealth preservation.

Consider a technology-focused index fund that has a high concentration of the major tech stocks. While such a fund might hold hundreds of different individual stocks, which have shown strong recent performance, relying solely on this fund would not provide the level of diversification we typically recommend.

Recency bias can lead us to believe that what has done well recently will continue to do well, but this is not always the case. Because we don’t know what the future holds, diversification can help mitigate risk and preserve your wealth.

4) Not Starting Today

You’ve likely heard the Chinese proverb: “The best time to plant a tree was twenty years ago. The second best time is now.”

While most of us wish we had started investing earlier in life, it’s not possible to turn back time. What is possible is starting today.

Starting to invest today offers two powerful benefits: the power of compound interest and the development of consistent investing habits. By investing regularly, whether it’s every week or with each paycheck, you create a natural rhythm that makes investing a seamless part of your life.

Building wealth is similar to building health. It’s not about one-time, jackpot events but rather small, consistent choices made over time. Living below your means and consistently investing will not only help you build wealth but also make the process feel effortless.

In conclusion, avoiding these common investing mistakes can set you on the path to financial success. Let your money work for you, stay invested, diversify your portfolio, and start investing early and often. These strategies will help you build and preserve wealth over the long term.