Getting emotional about your investments will usually cost you. On the other hand, it's valuable to make emotion-driven mistakes early in your investing career so that in the future you will realize when you are either too excited about an investment (and tend to invest too much in it) or when you are overly worried about an investment (and tend to sell too early or as the investment is about to rebound).

A number of investing pitfalls arise from getting emotionally wrapped up in your investing decisions. Investors in individual stocks frequently sell winning stocks too early. They also refuse to sell losing stocks because they want to “get back to even” on the loser, despite evidence that the business of the losing company may not turn. Meanwhile, they miss the tax break they could have received by selling the loser to offset other capital gains.

Investors of all stripes tend to get emotional just at the wrong time, selling when a market has already fallen and everyone believes that it will continue falling, and buying after a big rally, when most people believe that the rally will continue indefinitely, but is actually ending. You can avoid this pitfall by not investing all your funds at the same time.

You should also stick to mutual funds and ETFs, where the size of your mistake will be smaller than if you buy into the wrong stock. If you make and stick with your financial plan, you will be able to avoid the emotional side of investing and prosper.

Not Doing Your Homework

Learning the lingo, asking questions, and researching stocks or investment companies are essential steps to your long-term success. You have to be willing to learn a vocabulary of investment options, and their benefits or detriments, so that you can then discuss them with a financial advisor or broker. Failing to learn the basics puts you at the mercy of a broker or financial advisor, who may or may not be making decisions in your best interests.

We've given you a basic understanding and a financial vocabulary, but it would behoove you to do in-depth research on specific stocks or mutual funds, and the tax consequences of each. Protect yourself by arming yourself with as much knowledge as possible, and keep expanding that knowledge so that you truly become a savvy investor.

Putting All Your Eggs in One Basket

One of the biggest and most debilitating investment mistakes you can make is not diversifying your portfolio. If you put all your funds into a small number of stocks and bonds, you may make money, but you can also lose a lot of money quickly.

Diversification decreases the risk in your portfolio and makes you better able to meet your financial goals. Keep in mind that to make your portfolio diversified, you need to invest in a few different asset classes that don't move up or down at the same time. Investing in a few different kinds of stocks and bonds, and perhaps adding a couple percent of a diversified commodities fund for variety, isn't a bad place to start.