Stocks are back near all-time highs. Here are 3 investing mistakes to avoid at the top.

Business Insider

02-07-2025

Dear US investors, congratulations, you did it.
After a first half of 2025 marked by tariff uncertainty, geopolitical turmoil, and a polarizing tax plan, major indexes are back near records.
Now comes the hard part: making the right decisions to protect your equity nest egg.
It's easier said than done. The assumption can be made that the path higher has been cleared. But the trio of forces that have been a drag on the market this year aren't gone. And for that reason caution is required.
Detailed below are three common mistakes investors should avoid going forward.
1. Don't wait for a dip to buy more
If you have cash to deploy, it's tempting to wait for a future dip instead of buying now. But investors who subscribe to this line of thinking are committing the classic mistake of trying to time the market.
"That dip might never come, or the dip may come from an even higher place than we are right now," Clark Bellin, president and chief investment officer of Bellwether Wealth, told Business Insider.
All-time highs aren't a rare occurrence, having happened more than 100 times in the last decade alone. And they're often followed by even more robust gains. For long-term investors, the timing of entry into the market has minimal impact.
An analysis by RBC Global Asset Management shows that, since 1950, the S&P 500 has never ended a 10-year period more than 10% below any of its previous all-time highs.
Some investors may be concerned about high valuations in the stock market, but that isn't always a bad thing. Richly priced stocks can also have strong underlying earnings and competitive advantages that offer compelling investing opportunities.
At this specific moment in time, S&P 500 earnings revisions are on an encouraging upward trend, suggesting the stock market rally is backed by solid fundamentals.
"In trying to wait for that perfect dip or moment, you may be waiting forever," Bellin said.
2. Don't buy based on FOMO
Another tempting investing tactic is to buy into market hype and chase big winners that have already seen outsized gains. This can backfire.
If a bunch of investors collectively pile into a specific stock or sector, it can lead to prices becoming overheated. Jumping in at these moments can leave investors exposed to sudden pullbacks or sharp corrections, especially if fundamentals don't support the elevated valuations.
Bellin points to cryptocurrency as an asset class that is especially susceptible to this type of run-up. Investors tend to pile in as prices rise, but cryptocurrencies often experience sell-offs exceeding 50%.
Putting in too much money all at once can be just as bad, if not worse, than sitting on the sidelines, especially if you're investing based on hype. Thanks to a psychological effect known as loss aversion, investors feel the pain of losing money far more intensely than the satisfaction of equivalent gains, leading to panic-selling and poor decision-making.
The best strategy for investors is to have a regular investing schedule, said Jacqui Smith, portfolio manager at Reynders, McVeigh Capital Management. Dollar-cost averaging can smooth out the overall price you pay and reduce the impact of short-term volatility.
Smith also recommends looking into quality companies with strong balance sheets to weather potential tariff concerns going into the future.
3. Don't forget to rebalance periodically
Investors should also be mindful of their portfolio allocations, especially when markets are at all-time highs.
For example, investors who own Nvidia might have seen a sizable return, meaning that the stock might be a much bigger part of their portfolio than it was a year ago. And with much of the gain in the S&P 500 driven by the Magnificent Seven, investors might not be aware of just how much AI exposure they have.
"Investors should be very cognizant of inadvertently doubling down on AI by owning the S&P 500 and then owning Nvidia and other individual stocks on the side," Gary Quinzel, vice president of portfolio consulting at Wealth Enhancement, told Business Insider.
He continued: "It could work for a short while and it could lead to outsized returns, but that's a prime example of knowing what you own."
A well-diversified portfolio can insulate your money from market fluctuations, and the opposite is true for a more concentrated portfolio. All-time highs can be a good checkpoint to assess your risk tolerance, rebalance your holdings, and trim some names that have been big winners, Bellin said.
If you've incurred losses in other areas of your portfolio, Bellin recommends investors look into tax-loss harvesting to help offset the tax effects of taking profits off the table.