Starting your investing journey? Avoid these 5 common mistakes.

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Co-Authored and Reviewed by Gagan Sandhu, MBA - The University of Chicago Booth School of Business, CEO of Xillion
Posted on . 5 min read

Time is the most important ingredient in investing.

That’s why it’s so important to set yourself up for success early. Unfortunately, when most people start investing, they know the least about how to do it and are therefore most likely to make mistakes. Xillion can help you avoid early mistakes and reap the rewards over time. If you make these small changes now, it can add up to millions of dollars over a couple of decades.

Here are five of the most common mistakes beginner investors make, along with tips for avoiding them:

1. Holding too much cash in an emergency fund.

In 2022, only 33% of Americans were financially prepared to cover an unexpected $400 expense. But if you’re reading this, chances are you’re more diligent about saving than the average American — perhaps too diligent.

We’ve found that Xillion customers tend to save too much money. One Xillion customer had around $250,000 in emergency savings! This can be a costly mistake. While it's important to have an emergency fund, saving too many limits your ability to grow wealth over time. For example, an investor who put $10,000 in an index fund with an average annual return of 7% would have over $76,000 after 30 years, compared to just $18,000 if they kept the money in a savings account earning 2%.


Xillion’s Intelligent Emergency Fund calculator helps you figure out the right amount to stash away. We also help you invest the rest for long-term returns.

2. Not rolling over your retirement accounts.

When you change jobs, it's important to think carefully about what to do with your 401(k) or Roth IRA account. Rolling it over into another employer's retirement plan can help you avoid taxes and penalties while you continue growing your retirement savings.

Another reason? Reduce complexity. It’s easier to forget about retirement accounts when you have two or three of them. Because of the tax benefits of a 401(k) or IRA, it’s especially important to get the investment allocation right early on. Small corrections now can create millions of dollars throughout your career.


Call your old retirement account provider. Tell them to close your account and send you the check. Take this check to your current 401(k) or IRA providers. Then use Xillion’s 401(k) optimizer to optimize your account in as little as ten minutes. Step-by-step instructions on how to do rollover are in this blog.

3. Avoiding index funds and ETFs.

Buying individual stocks can be fun and lucrative — if you know what you’re doing. But index funds should be the foundation of your portfolio, especially while you’re young. Index funds provide diversification by including a large number of stocks in one investment vehicle. This lets you enjoy the high average returns of equities, without the higher risk that usually comes with investing in individual stocks.


S&P 500 ETFs (VOO, SPY, etc.) have an average historical return rate of around 13% per year (last 10 years). They include companies across industries such as Apple, Microsoft, McDonald’s, Walt Disney, Johnson & Johnson, Home Depot, and Procter & Gamble. And the best part? Index funds and ETFs such as VOO have a consistent investment strategy, so they adjust over time and don’t need much attention from you.

Don’t know where to get started? Check out our blog post on the benefits of index funds. Xillion’s portfolio analyzer will help you integrate them into your investment portfolio with the optimal balance.

4. Renting an apartment when it makes more sense to buy.

62% of Americans below the age of 35 rent, according to Pew Research Center. Home prices have risen at a much higher rate than incomes in recent years, pushing home ownership out of reach for millions of Americans.

But that might not be the case for you. It’s important to find out because rents tend to rise 5-10% annually, while a fixed-rate mortgage lock you into a payment rate.


To figure out whether you should rent or buy, it’s important to consider factors such as the cost of home ownership, your ability to save for a down payment, and your long-term financial goals before making a decision. Xillion's Home Buying Tool simplifies the math, giving you confidence in whichever decision you make.

5. Timing the market.

Investing tends to be very psychological and that can create problems. When markets are up, investors feel optimistic and put more money in markets. When markets are down, investors feel cautious and avoid putting money into markets. The problem? You ideally want to put money into markets when valuations are down, and reap the returns as investment values go up.


Fortunately, there’s a tried and true technique for avoiding this problem: dollar cost averaging. All dollar cost averaging means investing a fixed amount at regular intervals. For example, you might invest 20% of your paycheck into markets every month. Dollar-cost averaging makes it so you don’t have to worry about whether the market goes up or down. Instead, over time, it gets averaged out. You just trust the process. And trust low-cost index funds or ETFs like FXAIX, VOO, SPY, etc.

Still don’t believe us? Check out this blog post that shows how a portfolio built through dollar cost averaging would perform over time.

Final thoughts

If you made some of these mistakes, fear not. As the saying goes: “The best time to plant a tree was 20 years ago. The second best time is now.”

Correcting these mistakes early can help set you on a path to financial success. By avoiding these common pitfalls, you can ensure that your investments are working hard for you and growing your wealth over time.

Even if you don’t suffer from these beginner mistakes, Xillion has plenty to offer. We take the guesswork out of investing and set you on the optimal path toward your financial goals. Get started with a free account today.

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