Mistakes to Avoid When Investing in the Stock Market

Most investing losses come from a handful of mistakes that people repeat. None of them take bad luck. They take a bad habit, and habits can be fixed before they cost you.

The mistakes that cost the most

Trying to time the market. Nobody calls the top or the bottom consistently. J.P. Morgan found that $10,000 in the S&P 500 from 2006 through 2025 grew to $80,619 if you left it alone, but only $35,866 if you missed just the 10 best days. The fix is boring: invest the same amount on the same schedule and let the calendar decide, not the headlines.

Chasing whatever's hot right now. By the time a stock shows up in your feed as "the next big thing," most of the easy gain is usually already priced in. If you want to pick stocks, set a limit before you start, like 5% or 10% of what you invest, and keep the rest in broad funds. That way being wrong costs you a little instead of a lot.

Ignoring fees. A 1% annual fee sounds small. On $10,000 over 30 years, 7% a year grows to about $76,100, while 6% grows to about $57,400. That 1% costs you about $18,700. Know what you're paying for management and trades. If you're in the TSP, you already have one of the cheapest options there is: the C Fund cost 0.035% in 2025, about 35 cents a year for every $1,000. The average dollar in a stock mutual fund pays about 0.40%, and a financial advisor often charges around 1% on top of that. Before you move money out of the TSP, compare what you'll pay on the other side.

Skipping diversification. If everything's in one stock or one sector, one bad quarter can undo years of gains. Finance professor Hendrik Bessembinder studied every U.S. stock since 1926 and found that about 4% of companies account for the entire net gain of the market. More than half of individual stocks did worse over their lifetimes than one-month Treasury bills. You can't know ahead of time which few will win, so owning the whole market through an index fund, or the TSP's C, S, and I Funds, means you own them too.

Letting emotion drive decisions. Panic-selling in a downturn locks in the loss, and the best days often come right after the worst ones. I walk through this in Market Fear and Your TSP.

Trading too often. Every trade is a chance to be wrong. Researchers Brad Barber and Terrance Odean looked at 66,465 households with brokerage accounts from 1991 to 1996. The ones who traded the most earned 11.4% a year while the market returned 17.9%. The extra trading was the difference. If you find yourself checking prices every day and looking for something to do, the best move is usually to do nothing.

Borrowing to invest. A margin account lets you buy stock with money borrowed from your broker. It makes gains bigger and losses bigger too. FINRA warns that you can lose more than you put in, and if your account drops too far, the broker can sell your holdings without asking you first. If you're just starting out, keep it simple: invest only money you actually have.

Not doing your own research. A hot tip from a forum or a friend isn't research. That goes double for anyone who leads with the fact that they served too. The SEC warns that scammers target service members on purpose, and some of them are veterans themselves. Before you hand anyone money, look them up on FINRA BrokerCheck and check the product itself. This isn't a new problem. In 2006, Congress banned a type of investment plan sold to service members that could take up to half of your first year of payments as sales charges.

Cashing out your TSP when you leave. Most people don't serve 20 years, and the TSP doesn't have to end when your service does. If you take the money out before age 59½, you'll usually owe income tax plus a 10% penalty, and the TSP holds back 20% for federal taxes up front. On a $20,000 traditional balance, that means a $16,000 check now and a $2,000 penalty at tax time, plus the income tax. You can leave the money where it is or roll it into an IRA or your next employer's plan, and it keeps growing. If you separate during or after the year you turn 55, the penalty doesn't apply to money you take straight from the TSP.

Selling too soon in a regular brokerage account. Hold a stock one year or less and any gain is taxed like your paycheck. Hold it more than a year and the rate drops to 0%, 15%, or 20%, depending on your income. Sometimes waiting a few extra weeks saves real money. This only applies to regular accounts. Trades inside the TSP or an IRA aren't taxed when you make them.

Investing without a plan. Know your timeline and how much risk you can handle before you put money in, not after it drops 20%. Write down three things: what the money is for, when you'll need it, and what you'll do the next time the market falls hard. If you don't want to manage the mix yourself, the TSP's L Funds do it for you, getting safer as the target date gets closer.

A quick check before you buy anything

• Do I have an emergency fund, so I won't have to sell in a bad month?
• If I'm under BRS, am I putting in at least 5% to get the full TSP match?
• Do I know what this costs me each year?
• Could my plan survive one bad company or sector?
• Did I check the person selling it on BrokerCheck?
• Is this money I won't need for at least five years?

If you can't answer yes to all six, fix that first. For more on getting started the right way, see Myths About Investing in the Stock Market and Tips and Tricks for Investing. For where each kind of money belongs, see Best Places to Grow Your Money as a Service Member.

Pick the one mistake on this list you're most likely to make, and decide now what you'll do instead when it tempts you.

Sources: J.P. Morgan Guide to Retirement 2026; TSP C Fund and TSP tax rules; Investment Company Institute, Trends in the Expenses and Fees of Funds; Bessembinder, “Do Stocks Outperform Treasury Bills?” (Journal of Financial Economics, 2018); Barber and Odean, “Trading Is Hazardous to Your Wealth” (Journal of Finance, 2000); FINRA, Margin Accounts; SEC, affinity fraud investor alert; Military Personnel Financial Services Protection Act of 2006; IRS Topic 409; checked September 2026.

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Disclaimer: I am not a financial advisor. The information provided here is for educational purposes only and should be verified independently. See the full Disclaimer.