Everyone makes mistakes with their money, even financial experts like Suze Orman. The trick is being able to learn from our errors and do better the next time. We can also learn a lot by studying other people’s missteps.
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So what’s Orman’s biggest investment mistake, and what can it teach us?
Orman said her No. 1 regret is selling stocks “too soon,” or before they reached their full value. She explained: “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.”
After selling her stock and watching its value soar, Orman bit the bullet and bought it again, at a much higher price than she’d originally paid. What lesson did Orman learn? Don’t second-guess your own investments. If a stock is performing well, hold it rather than selling prematurely.
Holding for the Win
Orman’s experience calls to mind some of Warren Buffett’s most famous advice: When you invest in a stock, always plan to hold onto it for a long period of time. As the Oracle of Omaha says, you shouldn’t hold a stock for 10 minutes if you aren’t prepared to own it for 10 years.
Holding a stock over a long period of time — instead of quickly flipping it — can protect you from making impulsive mistakes driven by fear. Taking a long-term view of the market tends to result in greater gains, as Buffett has often pointed out. That’s why it’s often a mistake to sell a stock while it’s still performing well, as Orman learned.
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Other Common Investing Errors
Over the years, Orman has pointed out a number of common investing mistakes to watch out for. Here are three of the big ones.
1. A Lack of Financial Education
All too often, Orman said, young people don’t understand the most basic financial concepts. Over time, a lack of a solid financial background can land young investors in hot water.
Orman explained: “Gen Z is excited about investing, and that’s amazing. However, too many are skipping the foundation. They know every TikTok trend but not enough about the basics such as compound interest, Roth accounts or the power of starting early.”
Here’s how she broke it down: Many younger investors don’t understand the importance of keeping their expenses low, building up an emergency fund and investing in the right retirement account. They often fail to build the right safety net for themselves, and that makes all of their investments “shaky.”
2. Using Targeted Investment Funds
Orman said putting your retirement savings into a target-date mutual fund is a huge no-no.
A target-date mutual fund is an instrument that chooses investments based on the year you plan to retire. Orman said that kind of investment is likely to backfire because it doesn’t take into account your unique circumstances.
Factors like your overall financial picture, income, health and personal goals all need to be considered when you plan your retirement portfolio. Investors should never just choose a generic retirement plan based on a projected date.
In fact, Orman had some harsh words for target-date mutual funds: “They’re for people who don’t want to think, and that’s never a good strategy.”
3. Relying on Homeownership
Orman isn’t afraid of controversy, as we can see from her views on real estate. The financial guru said that, often, homeownership isn’t a good investment at all. In fact, it can actually be a “path to poverty,” according to Orman. Factors like extreme weather and sky-high insurance premiums can make homeownership overly expensive rather than a rewarding investment.
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This article originally appeared on GOBankingRates.com: Suze Orman’s Biggest Investing Mistake
