5 Investing Mistakes to Avoid in Your 30s and 40s

introduction

Last week’s blog focused on five investing strategies that you should consider implementing during your 30s and 40s. This week, we are going to flip the script and look at five common investing mistakes that can hurt your ability to build long-term wealth.

I’ve used this analogy before, but the key to investing is to control the variables that are actually in your control. Those variables include: how much you invest, which accounts you use, which investments you choose, and when you purchase or sell your investments. You’ll notice that performance is not one of these variables. We cannot control how the markets behave. Sometimes, we can make educated guesses on how the market may perform based on underlying economic conditions. Still, part of market performance is driven by investor sentiment, and that can be quite unpredictable.

So, the five investing mistakes to avoid in your 30s and 40s will focus on variables that you can control. These include the following:

1) Not Having an Investment Plan

2) Having a Plan but Not Sticking to the Plan

3) Waiting Too Long to Begin Investing

4) Overlooking Fees and Taxes

5) Letting Emotions Dictate Investment Decisions

not having an investment plan

Think of an investment plan as a baking recipe. I’m not a professional baker, so if I tried to bake a cake without a recipe, it would certainly end up a disaster. The little I do know about baking is that there are several “core” ingredients, like milk, butter, flour, and sugar. However, simply knowing the “baking staples” would be of little use in helping me actually bake a cake because the recipe provides all the necessary information. Without a recipe, I wouldn’t know how much of a certain ingredient to include or when to add it during the baking process. Each ingredient within a recipe is meant to counterbalance the taste of another ingredient. I would likely create a cake that was inedible because it would be overly bitter or overly sweet. Also, baking requires precision timing and temperature, both of which should be provided by the recipe. There’s no way that I would nail the timing without a recipe. Simply put, baking without a recipe would result in a terrible dessert.

I can’t bake a cake without a recipe, and most 30-year-olds and 40-year-olds cannot build and keep long-term wealth without an investment plan.

An investment plan is designed to provide investors with the necessary “ingredients” and, more importantly, the amounts required of each. Certain plans will call for an investor to have 80% invested in stocks, while other plans may require 40% only be invested in stocks. Many investors know that stocks are a “core staple” of investing, but they don’t know how much is appropriate for their investment plan.

Just like a recipe provides timing, so too does an investment plan. I’m not referring to market timing—more on that later—but by timing, I mean time horizon. The key to investing is knowing when you will need to use the money you invest. Will you need to begin using your invested money in 30 years or next year? The answer to that question helps dictate how much short-term risk we can take with our investments. But if you don’t have an investment plan, then you probably don’t have the appropriate mix of investments that aligns with your timing.

Many of us need a recipe to bake a cake, but we all need an investment plan to grow our long-term wealth.

having a plan… but not sticking to it

Okay, I’m going to risk losing some of you by going back to the baking analogy.

A recipe is only good if you actually STICK TO THE RECIPE. No freewheeling or improvising. Don’t substitute baking powder for baking soda (don’t ask me why, I just know that it’s bad).

If you have an investment plan, then you are already in a good spot! However, that plan is sound only if you follow it.

There’s a concept within investing called rebalancing, which is periodically selling or buying investments to get you back to your investment plan. For example, we may determine that 30% of all investments should be comprised of large U.S. companies, but six months later, you may have 35% of your investments in large U.S. companies. That’s where rebalancing comes into play: selling 5% of the large U.S. companies and using the proceeds to reinvest in other areas where you might be a little “light.”

While rebalancing sounds simple in principle, I have often found it more difficult in practice. Why? Because investors are human. It’s hard to look at an investment that has performed well and sell it to buy other investments that haven’t performed as well. However, consistently sticking to your investment plan will ensure that you are not a prisoner of the moment and that you do not take on more risk than you are comfortable with or can afford to assume.

waiting too long to invest

You’ve probably heard the adage: the best time to start investing was yesterday. It sounds corny, but it’s absolutely true.

Consider the following excerpt from Save More Tomorrow by behavioral economist Shlomo Benartzi:

“Brian and Randy each earned $60,000 when they joined the company. They both intended to retire when they reached sixty-five. Brian immediately signed up for the company’s 401(k) plan, saving 6 percent of his pay, which was matched by the company, fifty cents on the dollar, up to 6 percent. Randy deferred investing and decided to buy his dream car and have a good time. Five years later, Randy married and decided he had better start investing for retirement. He opted into the 401(k) plan on the same terms as Brian. Here is their accumulated balance when they reach sixty-five, assuming a 7 percent annual return and no change in salary:

Brian: $773,000

Randy: $528,000

Randy realized, too late, that five years of having a good time meant that he would have to live on a retirement income that was just two-thirds the size of his pal’s.”

I don’t use this tactic to instill fear, but simply to remind you that compound interest is an investor’s best friend.

Here’s my advice for you:

1) Begin contributing to your employer’s retirement plan

2) Invest what you can afford, but try to increase contributions as quickly as possible

3) If you get a raise, try and increase your contributions

Of course, working with a financial planner will help you determine if you are “on track”, but don’t let the fear of investing stop you from getting started.

ignoring fees and taxes

Investing during your 30s and 40s is the key to building long-term wealth. However, investment fees and taxes work against you in your quest to build wealth.

Every investment fund has an expense ratio, an annual fee expressed as a percentage that covers the costs of managing, operating, and marketing the fund. The expense ratio is paid by the fund’s investors through automatic deduction from your investment account. For example, let’s say you invest $10,000 in the Fidelity Contrafund (FCNTX), which has an expense ratio of 0.63%. Over the course of the year, you would pay $63 in fees. Expense ratios are important because they cut into an investor’s return. A higher expense ratio yields a lower net investor return.

Now, I’m not saying you should find the lowest-cost funds and invest solely in them. There are funds with higher expense ratios but a history of strong performance, making them attractive investment options. At the end of the day, all investors should be analyzing the costs of investing in each fund they use. If a fund is expensive and lagging relative to its peers, it may be time to seek a replacement.

On top of fees, poor tax planning can be extremely costly to you when investing in your 30s and 40s. Effective tax planning is analyzing strategies that will lower your lifetime tax bill, not necessarily how little you can pay in taxes this year. With that said, here are some common examples of poor tax planning that I see 30 and 40-year-olds make:

a: Not utilizing Roth accounts when in low tax brackets - the tax savings you receive today for contributing to a non-Roth account will likely be less than the tax owed when you pull the money out in retirement.

b: Selling investments in a taxable account without knowing the tax ramifications - sometimes we will sell investments to cover a large expense, or for some other funding need. However, any sale triggers a taxable event, so you want to understand the tax implications prior to placing the sale.

c: Placing tax-inefficient investments in a taxable account - interest, dividends, and capital gains are subject to annual taxation, so choosing high-interest investments (CDs) or high-dividend paying funds (bond funds) can spike income, causing you to pay more in taxes.

Investing in your 30s and 40s can set you up for financial freedom in your 50s and 60s. But fees and taxes can cut into that freedom unless you properly plan for them within your investment plan.

investing emotionally

There’s a whole field of behavioral finance that seeks to explain how human biases affect financial decisions. From an investing standpoint, here are some examples of investing mistakes due to emotions and financial biases:

a: Loss Aversion - the implication that losses loom in our minds about twice as large as equivalent gains. So, the joy you feel from a $50 lottery win is not equivalent to the hurt you feel from gambling $50 and losing it all. This is important because loss aversion tends to lead investors to be overly conservative or partially exit the market when the waters get choppy. The key is understanding that losses are part of investing and keeping the long view in mind whenever we go through a stretch of poor market returns.

b: Recency bias - investors putting too much weight into recent events, and thinking these events will continue indefinitely into the future. The Trump tariff announcements in March/April 2025 prompted many investors to sell a large portion of their stock holdings. Conversely, many investors didn’t want to sell stocks during the roaring markets of the 2010s because every year produced positive returns… until March 2020. Don’t place too much weight on today’s headlines. The best advice is to take a breath before making a rash decision.

c: Herd Mentality - Everyone’s favorite acronym: FOMO. Social media has many positives, but it can also lead investors to make decisions that don't align with their overall plan. Why? Because some TikTok influencer is talking about how much money they made day trading Bitcoin, or how much passive income they earn from renting five properties. Subconsciously, you begin to think, “Hey, I want to make money, maybe I should purchase some Bitcoin.” Then, more and more people hop on the train until the investment is predominantly composed of people with FOMO, rather than solid fundamentals. If you don’t believe me, Google Tulip Mania Bubble of the 1600s. Sure, you can make money, but you’d better be seated in a chair when the music stops. My advice: don’t make investment decisions based on TikTok videos or Instagram reels.

Having emotions and biases is part of being human; it’s not going away. However, knowing when you might be making an investment decision based on emotion is the key to building wealth. The best investors have the ability to stop and think, without acting impulsively.

parting thoughts

investing during your 30s and 40s is critical to you building up the necessary nest egg to retire. However, there are a lot of factors that can work against you. It’s not possible to avoid every investing mistake, but there are many self-inflicted mistakes that we can avoid.

I want to leave you with this comment. We cannot change the past, what is done is done. So, if you feel like you’ve messed up, that’s totally fine. I will never dwell on a client’s decisions prior to working with me. The best thing we can do is look forward and create an investment plan that works for you and one that can get your commitment.