Jasmine Birtles
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Why 90% of Investors Underperform (And How to Be in the 10%)
Ruby Layram
10th Mar 2025
Although the online space is decorated with promising stories of investors and traders making loads of money in the markets, the reality is that a large portion of traders will underperform!
So, what’s going on? Why do so many people struggle to get decent returns, and more importantly, how can you avoid falling into the same trap?
In this guide, I will explain why some investors lose money and how to avoid these mistakes so that you can join the profitable group!
**Nothing in this article should be taken as financial advice. Investing always comes with risk and there is no guarantee that you will avoid losses by following the information that we provide.
The Common Investing Mistakes Leading to Underperformance
So, why do so many investors lose money? These common investing mistakes could be to blame!
Chasing hype
We’ve all been there—hearing about the latest “hot stock” or “can’t-miss opportunity.” The fear of missing out kicks in, and before you know it, you’re investing in something you know little about.
Remember the dot-com bubble? Investors poured money into tech companies without understanding their business models, leading to massive losses when the bubble burst.
Stick to your “circle of competence”. This concept, created by the infamous Warren Buffett, suggests investing in areas you understand well. By doing so, you make informed decisions and avoid unnecessary risks.
Market Timing
Trying to predict market movements is like trying to predict the British weather—unreliable at best. Many investors attempt to buy low and sell high but often end up doing the opposite.
Studies have shown that most investors buy stocks when prices are high and sell when they’re low, leading to poor returns.
Instead, it is better to adopt a long-term investment strategy. Instead of trying to time the market, focus on time in the market. This approach allows you to benefit from compound growth over time.
If you’re feeling a bit adventurous, take a look at contrarian investing. This investing strategy involves going against the flow and buying when stocks are low to take advantage of future growth (which is never guaranteed!).
High Fees and Costs
Investing isn’t free, and high fees can eat into your returns over time. For example, actively managed funds often charge higher fees but don’t always outperform passive index funds.
For a lower-cost option, consider low-cost index funds or ETFs that track the market. This passive investing strategy can lead to better net returns over time.
Always spend time familiarising yourself with the cost of investing before putting any money into a platform. Where possible, try to find investment platforms that offer low fees.
Behavioral Biases
Human psychology plays a significant role in investment decisions. Biases like loss aversion, herd mentality, and the status quo bias can negatively impact your investment choices.
Understanding these biases can help you make more rational decisions and avoid common pitfalls.
Before parting with any of your cash, educate yourself about behavioral finance and be mindful of these biases when making investment decisions.
Strategies to Join The Top 10%!
Now that we’ve covered what NOT to do, let’s take a look at investing best practices that could (not will!) help you to join the top 10% of investors.
Educate yourself
You know what they say: knowledge is power. Understanding the basics of investing, financial markets, and economic principles can significantly improve your investment decisions.
Our bi-weekly investing newsletter could help you here!
Read books, attend seminars, and follow reputable financial news sources to stay informed. In general, try to learn as much as possible before you put any money on the line.
Diversify your portfolio
Don’t put all your eggs in one basket. Diversification spreads risk across various assets, reducing the impact of any single investment’s poor performance.
Try to include a mix of asset classes like stocks, bonds, real estate, and commodities in your portfolio.
Develop a Long-Term Plan
Investing with a long-term perspective helps you ride out market volatility and benefit from compound growth.
Set clear financial goals and create an investment plan that aligns with your risk tolerance and time horizon.
Stay Disciplined
Emotional reactions to market movements can lead to poor decisions. Sticking to your investment plan, even during turbulent times, is crucial.
Regularly review your portfolio but avoid making impulsive changes based on short-term market fluctuations.
Seek Professional Advice
It’s never a bad idea to ask a professional for help! Consulting with a financial advisor can provide personalized guidance tailored to your financial situation and goals.
Choose advisors from reputable organizations with a history of helping investors to make smart decisions.
Underperforming in investments is common, but it’s not inevitable. By understanding common pitfalls and implementing effective strategies, you can enhance your investment performance and work towards achieving your financial goals.
Remember, this isn’t financial advice! There is no guarantee that the value of your investments will go up and your money is always at risk.
Are you keen to learn more about investing? Sign up for our free fortnightly MoneyMagpie Investing Newsletter.
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.
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