Suze Orman: These Are the 3 Biggest Mistakes You Can Make as an Investor
Personal finance expert and New York Times bestselling author, Suze Orman has been in the financial trenches long enough to have watched investors make the same costly mistakes over and over again. Good thing she's not shy about naming them to help you avoid financial blunders.
In her iconic "Suze School: The Biggest Mistakes You Make as an Investor" podcast episode, she laid out the three behaviors that consistently derail even well-intentioned investors. Here they are, in her words.
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Letting Fear Make Your Decisions
Giving into fear tops Orman's no-no list in a big way, and it has two faces. The first is fear of buying. For example, say you research a stock, find it compelling, then talk yourself out of buying it because of the risk. Weeks later it's up 40% and you're devastated which means fear of entry costs you just as much as fear of staying in.
The second face is panic selling. "The biggest mistake you will ever make, and you probably are making it, or you have made it, is when, in fact, you stop investing. You sell, you get out. You let fear dictate the moves that you make,” said Orman.
Investors who give in to fear suffer from what's known as myopic loss aversion (MLA). MLA is also known as an investor's tendency to focus more on the short-term outcomes of a stock rather than the long-term benefit. As Orman observed, MLA often leads to selling investments too soon and losing out on potential profits, and on the flip side, she found that her clients who held the stocks because they were confident in their selections made much more money on average than those who sold due to fear.
Dumping All Your Money in at Once Instead of Dollar-Cost Averaging
When you invest, the value doesn't always increase. The price will often drop, and if you've invested all of your money already, you will miss out on an opportunity.
Many people think they need to invest all of the money they've set aside right away. According to Orman, this is a huge mistake. Dollar-cost averaging is her most important investment rule.
Dollar-cost averaging is an investment strategy where you invest a fixed amount in regular intervals instead of everything at once. By doing this, you can take advantage of price dips to buy more shares of a stock with the same amount of money.
Fidelity showed how this works with $5,000. When all $5,000 was invested in a lump sum of stock worth $20, it resulted in 250 shares. Then the same $5,000 was spread out in fixed investments over 5 months, with the stock price fluctuating between $18 and $21. This resulted in 253.4 shares due to dollar-cost averaging as opposed to 250 shares from lump-sum investing.
You can get more from your money if you're patient and willing to take your time. Ultimately, waiting for the right opportunity tends to pay off.
Skipping the Financial Foundation
Though it applies to all ages, this one is especially aimed at younger investors, so focus up, Gen Z. "They know every TikTok trend but not enough about the basics such as compound interest, Roth accounts, or the power of starting early,” said Orman.
Jumping straight into individual stocks or crypto without first building an emergency fund, understanding Roth IRA benefits, and keeping expenses low is, in her words, skipping the foundation. When investing, it's essential to focus the present. Thinking too much about what you had before instead of what you have now can skew your perspective.
Final Take: Rebounding From Mistakes
The bottom line is that even Orman has made investing mistakes. She said, “"The biggest mistake I've made was thinking I was smart just because I doubled, tripled or even quadrupled my money, and then selling too soon. I used to believe that when a stock went from $7 to $50, like Palantir, it couldn't possibly go higher — so I sold, only to watch it keep climbing."
The lesson here is don't let a round number trigger an exit. Remember to not give into fear, impatience or the temptation to skip some basics and you’ll be on the right path to building wealth. Peter Burns contributed to the reporting for this article.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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