Twenty Costly Mistakes and How to Avoid Every One

The most common ETF mistakes beginners make are chasing last year’s winner, ignoring fees, panic selling in a downturn, holding leveraged ETFs for the long term and owning several funds that hold the same companies. None of them looks dramatic at the time, but over a lifetime each one can cost tens of thousands of dollars.

ETFs are one of the simplest, cheapest ways ever invented to invest. That simplicity is exactly what makes these mistakes so easy to make, because it feels as though nothing can go wrong.

This guide sets out twenty of the most common beginner mistakes, grouped by when they happen: before you buy, when you buy and after you buy. Wherever possible, FRC has put a real dollar figure on what each one costs.

Start Here: Learn It Before It Costs You

Financial Regulation Courses (FRC) is a financial education provider with its roots in regulation and professional training. FRC sells no investments, manages no money and earns no commission on any fund, so its courses exist to help you invest well, not to sell you products.

ETF Investing for Beginners covers ETF basics, costs, trading, risk and building your first portfolio. ETF Investing Strategies teaches you to plan, build and manage a complete ETF portfolio, and Advanced ETF Investing covers rebalancing, tax placement, risk and complex funds.

FRC’s programs and memberships are open to everyone. Each course can be taken on its own, and interest-free payment plans let you spread the cost over two, three or four months.

How FRC’s Courses Prevent These Mistakes

Almost every mistake in this guide comes from the same place: investing without a complete, ordered understanding of how ETFs work. Free videos and posts teach fragments, and fragments leave gaps.

FRC’s courses close those gaps in sequence. Every chapter ends with a 15-question assessment with an 80% pass mark, and the next chapter only unlocks once you pass, so you cannot move on with a gap still open.

FRC uses AI teachers to present its video lessons in the FRC dictionary, so every lesson is delivered to the same high standard, every time, instead of depending on whichever instructor or online personality happens to be teaching. Every lesson is reviewed by qualified finance and compliance professionals before it is published.

The Twenty Mistakes at a Glance

Mistakes Before You Buy

These are the mistakes made in the planning stage, often before a single dollar is invested. They are the cheapest to avoid and the most expensive to fix later.

Investing Without a Plan

Many beginners buy a fund because it is popular, without deciding what the money is for or when they will need it. A fund that suits money you will not touch for 30 years can be completely wrong for money you need in three.

Start with the goal, the time horizon and how large a fall you could live with. Only then choose the funds that fit, and FRC’s guide to how to choose an ETF gives you a step-by-step checklist for doing exactly that.

Following Social Media Tips

Much of the investing content online is built to win attention, not to protect you. Many creators are paid by the products they mention, and regulators in the US and UK have brought actions against influencers for undisclosed promotions.

A tip from someone who is not accountable for the outcome is not advice. FRC’s guide to the best ways to learn ETF investing explains how to spot a fake guru before they cost you money.

Choosing by Last Year’s Return

The fund that topped last year’s charts is often concentrated in whatever just performed best, and leadership changes without warning. At the end of 2022, the dividend fund SCHD had held up far better than the growth fund SCHG, and many investors switched.

Those who moved $10,000 from SCHG into SCHD at the start of 2023 had about $12,200 by the end of 2025. Those who stayed in SCHG had about $23,800, almost twice as much, because SCHG gained 50.1% in 2023 alone.

FRC also tested a simple chasing strategy: each year, holding whichever of the total US market fund (VTI) or international fund (VXUS) had done better the year before. From 2013 to 2025 it turned $10,000 into about $40,800, less than the $44,700 from simply holding a fixed 70/30 mix of the two.

Chasing High Dividend Yields

A high dividend yield looks like free money, but it is only part of the return. A fund that pays out more income often grows more slowly, and some high-yield funds give up much of their upside to generate that income.

From 2012 to 2025, $10,000 in the dividend ETF SCHD grew to about $49,100, while $10,000 in an S&P 500 ETF grew to about $69,600. SCHD is a well-built fund, but its higher dividend did not mean a higher total return over that period.

Income funds can play a useful role, especially for investors who need cash flow. FRC’s guide to covered call ETFs explains the trade-offs behind the highest yields.

Ignoring Fees

The expense ratio looks tiny, but it compounds against you every year. Investing $500 a month for 30 years at 8% before fees grows to about $740,700 in a fund charging 0.03%, but only about $640,900 in one charging 0.75%.

That is a difference of about $99,800, for funds that may hold almost exactly the same companies. Over 20 years, a single $10,000 investment ends at about $46,400 at 0.03% and about $40,500 at 0.75%, while $100,000 ends about $78,700 lower in a fund charging a full percentage point more. Always compare fees between funds that track similar markets.

Holding Leveraged ETFs for the Long Term

Leveraged ETFs aim to deliver two or three times a market’s daily return, and they reset every day. That daily reset means they can lose value over time even when the market goes nowhere.

The market ended just 1% lower, but the 3x fund lost 9%. Repeat that pattern through a choppy year and the losses build quickly, which is why these funds are built for short-term trading, not for holding.

Owning Funds That Hold the Same Stocks

Beginners often buy an S&P 500 ETF, a total market ETF and a technology fund, believing they are diversified. In fact, the same giant companies sit near the top of all three.

From 2012 to 2025, the annual returns of an S&P 500 ETF and a total US market ETF had a correlation of 0.996, meaning they moved almost exactly together. FRC’s guide to how many ETFs you should own shows how to check overlap before you buy.

Not Looking Inside the Fund

A fund’s name does not always describe what it holds. A thematic or sector fund may have a large share of its money in just a handful of companies, while a fund labelled “dividend” can be concentrated in one or two industries.

Check the number of holdings, the top ten and the sector breakdown on the fund’s fact sheet. Two minutes of checking prevents most unpleasant surprises.

Ignoring Currency Risk

Investors outside the US who buy US-listed ETFs, or US investors who buy international funds, take on currency risk. If the dollar moves against your home currency, your return in your own money can be very different from the fund’s published figures.

This is not always a reason to avoid foreign funds, as currency moves can help as well as hurt. But it should be a conscious choice, not a surprise.

Mistakes When You Buy

These mistakes happen at the moment of trading. Each one is small on its own, but together they quietly add to your costs.

Using Market Orders

A market order buys at whatever price is available the moment it reaches the market. In a fast-moving or thinly traded fund, that price can be noticeably worse than the one you saw on screen.

A limit order lets you set the maximum price you are willing to pay. For most ETF investors it is the safer default, especially for less popular funds.

Trading at the Open or Close

Prices and spreads can be unsettled in the first and last minutes of the trading day, as the market absorbs overnight news and final orders. The bid-ask spread is often wider at these times.

Many experienced investors place orders well inside normal market hours instead. It costs nothing and avoids paying more than necessary.

Buying at a Big Premium to NAV

Most large ETFs trade very close to their net asset value, the value of the investments they hold. Some specialist funds, especially those investing in markets with limits on foreign investors or in hard-to-trade assets, can trade well above it.

If you buy at a large premium, you are paying more than the holdings are worth. When the premium disappears, for example because new shares can be created again, the price can fall sharply even if the underlying investments have not moved.

Spreading Small Sums Too Thin

Splitting $5,000 across ten ETFs leaves each position at just $500, too small to make a real difference to your results. It also multiplies the work of tracking and rebalancing.

When you are starting out, one to three broad funds usually give you all the diversification you need. You can always add more as your portfolio grows.

Mistakes After You Buy

The most damaging mistakes are usually made after the money is invested, often in the middle of a market fall. These are the ones a structured education does the most to prevent.

Panic Selling in a Downturn

In 2022, the total US stock market fell 19.5%, and $10,000 shrank to about $8,050. Investors who held on had about $14,700 by the end of 2025, while those who sold locked in their loss and missed the recovery.

Market falls are a normal part of investing, not a sign that something is broken. Investors who understand that in advance are far more likely to hold their nerve when it counts.

Trading Too Often

Treating long-term ETFs like trading tools quietly erodes their advantages. Every sale in a taxable account can trigger capital gains tax, every trade pays the spread, and frequent switching often means selling low and buying back higher.

ETFs are built to be bought and held. For most investors, the best trading strategy is to trade as rarely as their plan allows.

Trying to Time the Market

Many beginners sit on the sidelines waiting for a better moment to invest, especially after a crash. An investor who put $10,000 into an S&P 500 ETF at the start of 2023, just after the 2022 fall, had about $18,600 by the end of 2025.

Waiting just one year for things to settle and investing at the start of 2024 instead left about $14,700, almost $3,900 less. Nobody rings a bell when the recovery starts, and the strongest gains often arrive when the news still feels worst.

Not Reinvesting Dividends

Many ETFs pay a dividend every quarter. Taking those payments as cash, rather than reinvesting them, means losing years of compounding.

As an illustration, FRC modeled $10,000 in a fund growing 6% a year in price and paying a 2% dividend, over 30 years. With dividends reinvested, it grew to about $100,600, while with dividends taken as cash it grew to about $57,400 plus about $15,800 of dividends received, around $73,200 in total.

Never Rebalancing

As stocks rise faster than bonds, a portfolio slowly drifts into a riskier mix than you chose. A 60/40 stock and bond portfolio left alone from 2012 drifted to about 88% stocks by 2025.

Checking your mix once a year, or whenever a fund drifts about five percentage points from target, keeps your risk where you want it. FRC’s guide to how to rebalance an ETF portfolio shows how, including how to do it without selling anything.

Getting the Tax Rules Wrong

Holding the wrong funds in the wrong accounts can cost money every year. Bond funds and other high-income funds are often better held in a 401(k) or IRA, while broad stock ETFs are usually efficient in a taxable account.

Selling a fund at a loss and buying the same or a substantially identical fund within 30 days before or after the sale triggers the wash sale rule, which can cancel the tax benefit of the loss. It catches many beginners who sell and rebuy too quickly.

Waiting to Start

The most expensive mistake of all is waiting until you feel ready. Investing $500 a month from age 25 to 65 at 8% a year grows to about $1,745,500, while starting at 35 grows to about $745,200.

The same pattern holds at smaller amounts. At $200 a month, starting at 25 grows to about $698,200 by 65, while starting at 35 grows to about $298,100.

Ten years of waiting at $500 a month costs about $1 million, even though only $60,000 less was paid in, because the earliest dollars have the most time to compound. Learning properly does not have to mean waiting, because a structured course takes weeks, not years.

Why Beginners Keep Making These Mistakes

None of these mistakes happens because beginners are careless. They happen because most people learn about investing in fragments, from whatever appears in their feed, with nobody checking what they have understood.

That is why the same mistakes repeat across millions of investors. The answer is not more information, which is already everywhere, but a complete, ordered education that tests you as you go. FRC’s guide to whether ETF courses are worth it sets out exactly what learning the hard way costs.

Questions People Ask

What is the biggest mistake ETF beginners make? Panic selling during a downturn is one of the most damaging, because it turns a temporary fall into a permanent loss. Waiting years to start is just as costly over a lifetime.

Can you lose money in ETFs? Yes. An ETF rises and falls with the investments it holds, so a stock ETF can lose a large share of its value in a bear market, as in 2008 or 2022. Over long periods, broad index ETFs have historically recovered, but there is no guarantee.

Are leveraged ETFs a mistake for beginners? For long-term investing, usually yes. Because they reset daily, they can lose value over time even when the market they track goes nowhere, and they are designed for short-term trading.

Is it a mistake to own too many ETFs? Often. Many beginners own several funds that hold the same companies, which adds cost and complexity without adding real diversification.

Should I sell my ETFs when the market drops? Selling in a fall locks in losses and risks missing the recovery. In 2022, investors who held on to a total US market ETF had recovered their losses by the end of 2023.

Is it a mistake to invest in ETFs through social media tips? It is risky. Many creators are paid by the products they discuss and are not accountable if their advice goes wrong, so always check who is giving the advice and why.

How often should I check my ETFs? Far less often than most beginners do. Checking once a quarter or once a year is enough for a long-term portfolio, and checking daily makes panic selling more likely.

Should beginners use market orders or limit orders? Limit orders are usually the safer default, because they let you set the price you are willing to pay. Market orders can fill at a worse price than expected in a fast-moving market.

Is it a mistake to buy an ETF at an all-time high? Not necessarily. Broad stock markets spend much of their time near record highs, because they rise over the long term, and investors who wait for a fall often wait for years while prices keep climbing. Regular investing removes the need to guess.

What did Warren Buffett say about ETFs? Buffett has long recommended low-cost S&P 500 index funds for most investors. His warning was about the mistakes beginners make, such as paying high fees and trying to outguess the market, rather than about index funds themselves.

What are the worst mistakes people make when investing? The most damaging are usually behavioral: panic selling, chasing whatever is hot, trying to time the market and waiting years to start. High fees and poor diversification come close behind.

Is it a mistake to chase high-yield ETFs? It can be. A higher yield is only part of the return, and many high-yield funds grow more slowly or give up upside to generate their income, so always compare total return, not just the dividend.

How do I avoid ETF mistakes? Learn the foundations before you invest, keep your portfolio simple, keep fees low and decide in advance what you will do when markets fall. A structured course is the most reliable way to cover every step.

The Bottom Line

Every mistake in this guide is common, and every one is avoidable. Chasing returns, ignoring fees, panic selling and waiting to start can each cost tens of thousands of dollars, and together they can cost a lifetime of growth.

The investors who avoid them are not luckier. They simply understood how ETFs work before they started. Build that understanding with ETF Investing for Beginners, then go further with ETF Investing Strategies and Advanced ETF Investing.