If the market's jitteriness of the past few weeks has got you second-guessing your investing strategy, you're not alone.
No one wants to see their portfolio decline in value. After the recent volatility, many investors may be wondering if they ought to change up their portfolios or even sell out of stocks, in an attempt to head off any further declines.
But history shows that those might be the wrong mistakes to worry about. In fact, some investors may be so worried about what they can't control—like whether the market will go up or down in the next year—that they overlook the things they can control, like managing taxes on their investments and avoiding emotional decision-making.
Read on for 7 top mistakes that investors are making now, and how to avoid them yourself.
1. Worrying that they need to "get out at the top"
Sudden market pullbacks are always unnerving. With US stocks coming off a streak of above-average performance and new all-time highs, some investors may be worried that the recent volatility could be the start of a major downturn.
“After 2 strong years of stock market returns, this recent bout of market volatility may feel particularly jarring for investors,” says Naveen Malwal, institutional portfolio manager with Strategic Advisers, LLC, the investment manager for many of Fidelity’s managed accounts.
Yet history shows that pullbacks have historically been a normal part of investing—commonly occurring even in years that subsequently deliver positive total returns. Since 1980, the S&P 500® Index has experienced a drop of 5% or more in 93% of calendar years, and has experienced a drop of 10% or more in 47% of calendar years. Despite those frequent declines, the market’s average calendar-year return over the same period has been 13.3%.
“Since 1980, the S&P 500 index has experienced a decline of about −14% on average in any given calendar year,” says Malwal. “Yet stocks have normally recovered and finished with average gains of about 13% in any given calendar year, including dividends. So a market decline of −10% or −15% isn’t unusual, nor necessarily a sign that stocks will continue to decline. Market volatility can feel unsettling, but it is normal.”
2. Worrying that "this time is different"
Some investors may nevertheless be worried that “this time is different.” In the midst of uncertainty, it’s natural to fear the worst. Yet investors should remember that historically the US economy and stock market have again and again surmounted steep obstacles—including pandemics, recessions, market bubbles, and even a depression—and eventually gone on to thrive.
Moreover, while uncertainty has increased, investors should remember that many signs have continued to point to a resilient economy.
"The US economy came into this year on strong footing, with a solid corporate backdrop and a tight labor market. On average, US consumers have relatively strong balance sheets and have been seeing wage growth that is outpacing inflation," says Dirk Hofschire, managing director of research for Fidelity's Asset Allocation Research Team. "Although risks to the growth outlook have risen as uncertainty has increased, the economy is coming from a strong starting point, with reasonably low near-term risks of recession."
3. Focusing too much on news headlines
To be sure, there’s no shortage of uncertainty in the world.
Malwal says he sees many investors staying out of the market in the hopes that the landscape will look less uncertain at some future time. Some investors may feel that they should wait until policy changes are finalized by the new administration, or wait until the full effects of those policy changes are known. Others may worry about the tense state of global affairs, or risks to the economy.
Rather than using the 24-hour news cycle as a market indicator, Malwal suggests investors go deeper into the stock market's actual drivers—like corporate earnings, stock valuations, and consumer spending.
“Markets can react to news headlines and emotions in the short term,” says Malwal. “But over the long run, stocks have usually risen if corporate profits are growing. Corporate profits rose about 14% during the fourth quarter of last year and are expected to experience double-digit growth in 2025, based on analysts’ estimates.”
Keeping a sober-minded focus on the market's fundamentals may not be as exciting as following day-to-day news developments, but may provide a better foundation for sound decision-making.
4. Holding too much in CDs and other short-term investments
Short-term CDs and Treasurys came into favor among many investors in the past few years as rates rose. Many investors feel comfortable in these investments due to the potential protection they can provide in a down market, their low risk of default, and their predictable cash flows.
“There are many wonderful features of short-term investments,” says Malwal. “But investors with a long-term outlook have historically often been better off in stocks.”
The key challenge with short-term investments is a lack of stronger growth potential. “While it’s true that stocks may be more volatile than short-term investments or bonds in the near term, over the long run stocks have provided much higher returns,” says Malwal. Although rates on these investments may appear attractive, they may not be providing much growth after accounting for inflation.
Says Malwal, “Investors who have time on their side can typically benefit from having a broader exposure to stocks and bonds, or a combination of the 2, as opposed to staying in short-term investments for a long time.”
5. Trying to predict the future
If you browse financial news headlines, it's easy to find points of view making confident predictions about the future of the market, an asset class, or a given stock. Some investors may also enjoy the process of developing their own predictions, feeling that they are putting together a challenging puzzle, to better see the big picture.
While these predictions may feel compelling, remember that the wisest investors don't simply follow the most persuasive voice in the room. Instead, they typically follow a disciplined investing plan. The future seldom unfolds exactly as anyone predicts. And even when it does, the market has often already priced in any good or bad news.
“Rather than trying to predict what’s going to be the next major market development, what I have found helps investors more over the long run is to develop a sensible and well-rounded investing plan, which includes diversifying across a whole host of investments," says Malwal.
If you already have a sound plan that's suited to your needs, risk tolerance, time horizon, and goals, then stick to it. And if you need help developing a plan, learn more about how we can work together.
6. Not factoring taxes into investing decisions
Investors often think of their brokerage accounts as accounts they should use for trading stocks or pursuing their latest ideas. But because brokerage accounts are not tax-deferred, Malwal says this can lead to one of the top mistakes he sees: generating a bigger tax bill than necessary.
Actions like trading a lot and holding tax-inefficient investments can increase investors’ tax bills. “Generally speaking, in taxable accounts, investing tax-efficiently and making gradual changes may help investors keep more of what they earn before taxes,” he says.
Simple actions like choosing a mutual fund that trades less or keeping in mind the potential benefits of lower long-term capital gains tax rates may help investors keep more of what they potentially earn. Some investors could also benefit from tax-loss harvesting in their taxable accounts, which can help reduces taxes by offsetting gains or income. (If you’re already working with Fidelity, try our new Tax-Loss Harvesting Tool for step-by-step guidance to see if you can save on taxes while staying invested.)
7. Letting the perfect be the enemy of the good
Analysis paralysis can be a problem for any investor.
Even if you’ve come up with a solid investing plan, it can be easy to get hung up on “what if” questions. What if I’m missing out on an even better investment option? What if the market crashes tomorrow? What if my plan just doesn’t work out?
The reality is that investing is inherently uncertain. Even the most experienced investors can only work off estimates, not certainties. While investors might worry about the “right” answer to any given investing question—like what investment to buy or when to get into the market—the fact is there may be a range of reasonable solutions.
One thing has been true time and again historically: Over long periods, investors have done better by being in the market than being out of the market. If you’ve got a well-rounded, suitable plan that’s sensitive to your financial needs, then don’t let hang-ups about the perfect investment or the perfect time derail you from your goals.