Investing in the stock market can be a great way to build wealth and work towards your investment goals, like a stable retirement, a dream vacation, or a Lamborghini Sesto Elemento. But many retail investors unknowingly sabotage their returns. To help you avoid common pitfalls, here are three things you should NOT do if you want to make more money.

1. Frequent trading

What it is: Frequent trading means buying and selling stocks often, trying to time the market for quick profits.

Why it's bad: This strategy leads to higher transaction costs and taxes, eating into your returns. More importantly, market timing is difficult to the point of impossible, and even professional investors struggle with it. Frequent traders underperformed the market by an average of 6.5% annually after costs.

Example: Imagine you invest $10,000 and make 50 trades a year with a $10 commission per trade. That’s $500 in commissions alone, not to mention the potential tax implications. If you miss just a few of the market’s best days by being out of it at the wrong times, your returns could suffer significantly.

What to do instead: Adopt a buy-and-hold strategy. Invest at regular intervals in high-quality funds and hold them for the long term. This reduces transaction costs and let’s you to benefit from compound growth.

2. Lack of diversification

What it is: Putting too much money into a few stocks or sectors, instead of spreading your investments across a bunch of assets.

Why it's bad: Lack of diversification increases your risk. If one of your concentrated investments blows up, it can tank portfolio.

Example: In the 2008 financial crisis, a diversified portfolio lost 24% compared to a 37% loss for the S&P 500 index. Over the long-term, this makes a massive difference.

What to do instead: Diversify your investments across different asset classes, industries, and geographies. Use mutual funds or exchange-traded funds (ETFs) to achieve broad diversification easily.

3. Emotional decision-making

What it is: Making investment decisions based on emotions like fear and greed rather than logic and research.

Why it's bad: Emotional decisions lead to buying high during market rallies and selling low during market downturns - the opposite of what you should do! This behavior can massively reduce your returns.

Example: During the 2008 financial crisis, many investors panicked and sold their stocks at the market’s lowest points - that’s the best opportunity to buy! Those who stayed invested saw their portfolios recover and grow in the following years, while those who sold locked in their losses. 

Don’t get me wrong, it’s important to cut your losses with individual investments, but with diversified portfolios you can be fairly confident that growth will inevitably return in the long-term. Time in the market is more important than timing the market!

What to do instead: Create an investment plan and stick to it. Automate your investments to remove emotional influences and regularly review your portfolio to ensure it aligns with your long-term goals.

Watch the money pile up

See, not that bad! Avoiding these common mistakes can significantly improve your investment returns. Focus on long-term growth, diversify your portfolio, and keep your emotions in check. By following these simple guidelines, you’ll be well on your way to achieving your financial goals.

Stay the course!