How to avoid five common investing mistakes

You know you should be investing for your future, but you may not be quite sure where to start. You don’t have to be an investment expert, but it does help to know some basics, including what not to do with your investments. Here are five investing mistakes to be aware of—and to avoid.

1. Assuming you can’t understand your retirement savings plan investments

If you have a registered retirement savings plan (RRSP), a registered pension plan (RPP), or a tax-free savings account (TFSA), you likely have several investments available to you, including stocks, bonds, mutual funds, and target-date funds. Although some investments are complicated, all you really need to get started are some basics.  

  • Some investment types come with low risk and a relatively low potential reward, such as bonds and fixed-income funds.
  • Some investment types come with more risk and more potential reward, such as stocks.
  • By mixing up low risk/reward funds with high risk/reward funds, you can try to smooth out your risk and reward, making your investments less vulnerable to both the highs and the lows.

You can create your own mix of investments, or you can choose a fund that does it for you. Target-date funds, for example, make it easier by managing your investment mix for you, according to your planned retirement date.

2. Putting everything in one investment

You’re probably familiar with the saying, “Don’t put all your eggs in one basket.” This is especially true with retirement investing. Financial experts recommend mixing up—the experts call it diversifying—your investments among different types, so that if some aren’t doing well, others may help make up for that. For example, you may choose a mix of higher-risk, higher-reward investments—such as stocks—and lower-risk, lower-reward investments—such as bonds. Combining investments with varying risk and reward profiles can smooth out your investment returns over time.

3. Investing based on your emotions

When you watch the markets—and your investments—go up and down in value, it’s hard not to feel emotional. But with your retirement savings, you may want to stay focused on your long-term goals and not make trades based on your emotions. The markets move up and down daily. But, historically, they move up. Taking money out of the market when prices are down can cause unnecessary losses compared to leaving the money in the market. Staying focused on your long-term goals might be better than letting your emotions dictate your short-term decisions.

Over the long term, the markets tend to go up

A chart showing that, over the long term, the markets tend to go up.

4. Trying to time the market

Stock market performance is difficult to predict, especially in the short term. Even financial professionals can get it wrong. But many investors still try to time the market—which means trying to sell when prices are high and buy when prices are low. Whether you feel the market is at the top or the bottom, you can’t be sure. Markets can recover suddenly, and you want your money to be there to ride the wave. When you invest for the long term, try to follow a long-term strategy that doesn’t attempt to react to short-term market fluctuations.

5. Ignoring inflation

After many years of low inflation, it’s easy to forget the impact inflation can have on your wallet. Spending $7.79 in 2022 for the same jug of milk that cost you $5.69 in 2021 is a harsh reminder—and it can have an impact on your retirement savings as well. In March 2022, prices were 6.7% higher than in March 2021. That means your money lost 6.7% of its value. Consider including inflation in your investment strategy. You may want to keep a balance of some investments that offer high-growth potential and some with more steady earnings so you can try to keep up with inflation over time.

Keep your eye on the long term to avoid these common mistakes

There are no guarantees when you invest your money. But there are common mistakes and general best practices to be aware of when you’re investing for the long term, as you do with your retirement savings. By keeping your eye on the long term and investing in a mix of investments, you can avoid these common mistakes on your way to retirement.  

The commentary in this publication is for general information only and should not be considered legal, financial, or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.