6 Rookie Investing Mistakes That Can Lock in Losses Early

A market decline does not automatically mean an investment plan has failed. But for newer investors, a few reactive choices, such as selling in a panic to putting near-term money in stocks, can turn a temporary drop into a real and potentially lasting loss.

Here are six mistakes to avoid.

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1. Selling in Panic After the Market Drops

A portfolio decline can be painful or alarming, but it is not the same as permanently losing money. Michael Schramm, a certified financial analyst (CFA) with Emotional Finance, said that when someone sells, they lock in the loss.

“If the loss is just on paper, it can still recover so long as the money stays invested, and that money can keep compounding for decades,” he said.

Because newer investors often haven’t lived through a downturn or market correction, “a drop can feel like an emergency rather than a normal part of investing” and lead to panic selling, Schramm said.

Robert Johnson, a CFA and professor of finance at Creighton University, also warned against trying to predict the right moment to get out and get back in.

“Attempting to time the market is fool’s gold,” he said.

2. Holding a Loser Just To Break Even

Some beginners do the opposite of panic selling — they sell only the investments that have gone up, but this necessarily means keeping losing stocks in hand.

“Many hold onto losing positions, often telling themselves they will sell the holding once they break even,” Johnson said.

The original purchase price is not, by itself, a reason to continue owning an investment if the investor’s analysis, goals or need for diversification has changed.

“If you sell winners and hold on to losers waiting to break even, you end up with a portfolio of losers,” Johnson said.

Consider wringing some more worth out of those devalued stocks by tax-loss harvesting.

3. Investing Money You Will Need Soon

A beginner may be forced to sell at a low point if they invest money they need for essential expenses.

“One should not have mismatch between their investments and when the money is needed,” Johnson said.

Patrick Vishy, a behavioral finance educator and founder of NoNonsense.courses, said doing this as “when investing officially becomes gambling.”

The investment should match the timeline, as well. Money required within the next few years generally needs a safer, more accessible home than stocks, such as a high-yield savings or money market account.

4. Chasing a Hot Stock, Sector or Trend

Fear of missing out (FOMO) can cause new investors to buy after a stock has become wildly popular without understanding its risks or whether it fits a long-term plan.

“FOMO can pull a beginner into a bad investment or convince them they can pick winning stocks,” Schramm said.

Johnson said he is skeptical of artificial intelligence (AI) stocks, which could be overvalued in today’s market.

“About 93% of actively managed large-cap U.S. funds trailed the S&P 500 over the 20 years ending in 2025,” he said.

5. Making Oversized Bets Instead of Diversifying

Buying only a few individual stocks can leave a portfolio thinly dependent on just a handful of outcomes.

“Investors simply can’t afford to make oversized bets on individual securities,” Johnson said.

The solution is to invest in diversified funds, which can spread risk across many companies, though they cannot eliminate market risk. There’s a psychological benefit, too.

“When you are not living and dying off of the fate of a few positions, you can simply relax and let the market do its thing,” Vishy said.

6. Trading Too Often Without a Plan

Frequent trading can add costs and consequences and make it easier for emotion to override a thoughtful strategy.

“Just as stock market returns compound over time, the deleterious effects of high fees and transactions costs also compound over time,” Johnson said.

Ideally, an investor will set their investing strategy while markets are calm, including what they’re buying, why it fits their goals, how much risk they can handle and when they will revisit the decision, according to Johnson. You should also set up some guardrails.

“Decide how often you’ll check your accounts during downturns and commit to waiting 24 hours before making any trades,” said Schramm.

Beginners do not need to predict every market move. They are better served by investing only long-term money, diversifying, keeping costs low and creating a calm-market plan they can follow when fear or hype takes over.

Editor’s note: Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions.

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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