After using AI to test some portfolios for ETF income, covered call ETF income and inflation, I decided to ask about the most common things that can derail and investment portfolio. The response was interesting and surprising because I saw my own actions and behaviors in the list.
And that’s the great thing about AI, you can spot a bad behavior and then continue a discussion focusing on that behavior and doing a deep dive in how to correct it but that’s a post for another day..
Here’s what AI thinks are the most common stupid financial mistakes:
AI
🛑 Negative Actions That Can Harm a Financial Portfolio
📉 1. Poor Investment Decisions
- Chasing high returns / performance chasing
Buying assets simply because they recently performed well. - Panic selling during downturns
Locking in losses instead of following a long-term strategy. - Over concentration in a single sector, asset, or geography
Increases vulnerability if that area suffers. - Ignoring inflation risk
Holding too much cash or ultra-low-yield assets that lose real purchasing power. - Speculating excessively (e.g., meme stocks, options, leveraged ETFs)
Taking risks without understanding downside consequences. - Timing the market
Attempting to predict tops and bottoms, often missing key recovery days. - Failing to rebalance
Allowing winners to overweight the portfolio or losers to dominate risk.
📉 2. Excessive Risk-Taking or Undue Conservatism
- Taking on excessive leverage or margin
Losses become amplified, and margin calls can force selling at the worst time. - Too conservative in long-term portfolios
Relying heavily on cash or fixed income can erode wealth under inflation. - Lack of liquidity
Investing everything in illiquid assets makes it hard to respond to emergencies.
📉 3. Behavioral and Emotional Mistakes
- Acting on fear or greed
Emotional decision-making leads to buy-high/sell-low behavior. - Confirmation bias
Only seeking information that supports existing beliefs. - Anchoring to past prices
Refusing to accept new valuations or market realities. - Impatience
Expecting rapid returns instead of letting compounding work.
📉 4. Poor Cash-Flow Management
- Insufficient emergency savings
Forces liquidation of investments during downturns. - Overspending or lifestyle inflation
Reduces savings capacity and increases vulnerability during recession. - High consumer debt (credit cards, personal loans)
Drains cash flow and increases financial fragility. - Ignoring rising costs during inflation
Not adjusting budgets or investment allocations accordingly.
📉 5. Tax-Related Mistakes
- Triggering unnecessary taxable events
Selling assets without strategy increases tax drag. - Ignoring tax-advantaged accounts
Missing opportunities in 401(k), IRA, HSA, etc. - Poor withholding or estimated-tax planning
Leading to penalties or surprise tax bills.
📉 6. Ignoring Long-Term Risks
- No plan for health-care costs or long-term care
Unexpected medical expenses can drain portfolios. - No estate planning
Leads to probate delays, taxes, or misallocation of assets. - Failure to hedge against inflation
Not incorporating assets like equities, TIPS, real estate, or commodities.
📉 7. Lack of Monitoring and Strategy
- “Set and forget” without periodic reviews
Life changes and market changes require adjustments. - Not adjusting to economic conditions
Recessions, rising rates, or inflation require portfolio re-evaluation. - Outdated asset allocation
One that no longer matches risk tolerance, goals, or retirement horizon. - Neglecting fees
High fees on funds, advisors, or platforms quietly erode returns.
📉 8. Poor Diversification Across Asset Types
- Over-weighting highly correlated assets
Reduces the protective value of diversification. - Ignoring alternative asset classes
Such as real estate, commodities, or bonds when appropriate. - Holding assets with mismatched time horizons
Using long-term investments for short-term goals.
📉 9. Inadequate Protection Measures
- Insufficient insurance coverage
Unexpected disasters can require large withdrawals. - No hedging strategy for large concentrated positions
Particularly for business owners or employees with employer stock. - Skipping cybersecurity protections
Fraud or identity theft can directly impact financial assets.
📉 10. Life-Event-Related Financial Mistakes
- Not updating beneficiaries
Outdated records can send assets to the wrong people. - Divorce without proper financial planning
Assets can be divided inefficiently or unfairly. - Starting a business without financial buffers
Leads to personal portfolio drain if the business struggles.
📉 11. Ignoring Professional Guidance
- Not seeking expert advice when needed
Complex taxes, estate planning, or retirement drawdowns benefit from professionals. - Relying solely on internet advice or trends
May not account for personal risk tolerance or goals.
My Thoughts
Number #2 and Number #3 are probably the ones that stick out that apply to me somewhat. On #2, I would say I am too conservative at times with my money. On #3, confirmation bias and impatience ring a little true. I spend a great deal of time reading news and financial websites so if I’m investing in stock X, I tend to thoroughly read positive news and glance over negative news. It’s one of the reasons that I’m moving more toward ETF investing than stock picking although I still own a few stocks.
I think I’ve done fairly well on the rest and aren’t too much of an issue except for #5 (Tax) but I’m often the victim because of tax law changes. I do hate that I have to often revisit things like estate planning as tax laws change and my kids grow older because it’s a lot of work to update legal documents but I do ultimately end up doing it.
Share The Wealth
Does anything in this list ring true for you? Let me know in the comments below.