The Biggest Mistake Beginner Investors Make, According to the Rich Habits Podcast

"“The biggest mistake early investors make is they get greedy, they think they're a genius, and they don't take profits along the way,” Croak said on a recent episode. His mechanical rule removes the emotion. When a position is up 50%, sell 25% of the shares. When it climbs another 50% from there, sell another 25%. Continue the pattern. The objective is to “take all of my money out and play on the house's money” while booking a win."

"Consider a stock like Intel ( NASDAQ:INTC | INTC Price Prediction), which is up about 197% year-to-date and 439% over one year. If you followed Croak's rule, you would have trimmed the position several times on the way up, locking in cash long before any reversal. Hankwitz cited his own Amazon ( NASDAQ:AMZN) buy of $150,000 at around $200 per share. Amazon now trades at $271."

"Investors should always be balancing the risk or buying individual stocks vs. the return of index fund, the hosts said. “The only reason we invest into single stocks is because we have a deep conviction that that specific company is going to outperform the S&P 500 or the NASDAQ 100 over a specified period of time because of some specific investment thesis,” Hankwitz said. The S&P 500 has averaged about 12% since the mid-1930s."

"Croak directs reinvestment into the Vanguard S&P 500 ETF ( NYSEARCA:VOO) or Invesco QQQ Trust ( NASDAQ:QQQ), “good solid, long-term investments that everyone should own” that you can “let ride for life.” QQQ tracks the NASDAQ-100 Index with a rock-bottom 0.18% expens"

A $200 Intel position rising to $850 illustrates how early investors may feel confident and hold too long. Most new day traders lose money in their first year. A mechanical profit-taking approach reduces emotion by selling portions as gains increase: sell 25% when a position is up 50%, then sell another 25% after additional 50% gains, repeating the pattern. This aims to withdraw most capital and trade with profits. The approach is paired with balancing single-stock risk against index-fund returns. Single stocks are justified only by a strong thesis that a company will outperform major indexes over a defined period. Reinvestment can be directed to long-term index ETFs such as VOO or QQQ.

Read at 24/7 Wall St.