The 7 Money Traps That Keep You Poor

What's up you guys? It's Graham here. So, no surprise, investing throughout this last year has been one of the most eye-opening experiences for so many people in a very long time. In a span of 365 days, we've seen some of the worst single-day point drops in history, followed by a 30 to 80 market decline, followed by the shortest bear market in history, followed by the largest point increases in history, followed by a brand new record all-time high. And now, people are beginning to question whether or not the market has just peaked before we fall back down and experience it all over again.

Now, typically, we could just chalk this up to normal market volatility and then move on with our day, but not this time. Because throughout the last year, I've seen so many people make some very serious mistakes with their money that have easily cost them thousands or tens of thousands of dollars or more. And if that's not bad enough, all of those mistakes were easily avoidable had they just been aware of them and known what to do ahead of time. So today, let's go over the seven most common worst investing mistakes that you could make this year and then how you could not make those mistakes and make money instead.

And best of all, all of this information just comes at the low cost of one single like on the video. However, if you've already done that, you're thinking to yourself, "But Graham, I already hit the like button before you told me to do that. What else can I do to support your channel?" Well, good question, Graham! You could also subscribe and hit the notification bell. And if you like free money, use the link down below in the description, and Webull is going to be giving you two free stocks that are potentially worth all the way up to $1,850. And if you watch until the end, I'm going to be showing you the two free stocks that I got, so you can see how much those are worth.

So, with that said, you guys, thank you so much, and now let's begin. The first mistake you have to avoid is getting overconfident. Here's the thing: in a bull market, everyone looks like a genius. Back in March of 2020, you could have very easily created a dartboard of random stocks, thrown a dart blindfolded, then invested in those companies, and you would have made money. In fact, a few months ago, I even invested a hundred thousand dollars of my own money using a monkey to randomly pick stocks out of the S&P 500, and guess what? That monkey portfolio has made money, and it's currently beating the S&P 500.

Literally, a monkey right now picking random stocks is beating the index. Just let that sink in. The point I'm trying to get at is that when everything is going well, it's easy to think you're this amazing investor who has a magic touch. And you know what? Maybe you do. But once you start getting overly confident about your abilities as an investor, you begin losing your edge. It becomes a lot easier to overlook issues, disregard the fundamentals, and invest without considering the risk simply because, "Hey, you know what? So far, it's worked out well."

Overconfidence might also cause you to hold on to a really bad investment for too long because if you were confident enough in the first place to buy it, then you're definitely confident enough not to sell it, right? Wrong. That is most likely to cloud your judgment in making sound rational decisions, and from there, you lose money. Now, that's not to say that you can't be a talented investor. I've seen so many people who have been instrumental in helping me through the ins and outs of real estate investing and creating a diversified portfolio, but those people usually have the experience and the expertise to know that they don't know everything.

They still acknowledge that there's always going to be a missing piece of information and that anything can happen. I think a little bit of humility is going to go a long way for every single investor. Usually, the more you realize that you don't know everything, the more likely you are to make money. And the second mistake that almost all of us are guilty of at some point is getting impatient. There have been so many times where I've seen someone hold on to a really, really great stock, but then after a few weeks of it not pumping to the moon, they go and sell it and then try to time the next big winner.

But what usually ends up happening is that as soon as they sell, that original stock finally starts trending upwards, and they miss out on the opportunity because they constantly jump from one stock to another. Impatience like this usually ends up leading to impulsive, short-sighted decisions. It implies that you know how to best time the market, and it reinforces that it's okay to sell something that you get bored of because it doesn't constantly go up. The reality is, patience is one of the best qualities that you could have—not only in investing, but also just in life. The markets never just consistently go up, and there are going to be times where nothing happens or even the market goes down, and that's normal.

The goal is to plan, invest, and think long-term in 10-year increments. When you become impatient, you inadvertently become reactive, and when you become reactive, mistakes frequently happen, and money is lost. In order to be patient, you must endure short-term loss for long-term gain because that's what matters the most at the end of the day. Impatience is really just another form of emotion, and as we all know, emotion has no place in investing. So if you want to avoid this mistake, all you got to do is rest assured that time is on your side, and as long as you're investing in financially sound companies for the right reasons long-term, you're going to be fine, as long as you don't screw it up and you subscribe.

Now third, the mistake I really want to warn people about is not to over-leverage. Now, when I say leverage, I'm talking about borrowing money. This might include mortgage debt or a margin account or any money that you have that you will eventually have to pay back. When it comes to this, I'm definitely not a Dave Ramsey who's like, "No, guys, no debt at all! That's bad! Not at all! Avoid it. Pay off that two percent mortgage as soon as you can." But I am a firm believer that the right amount of debt can actually make some sense, as long as you're reasonable with it.

Now, I've said this before, but borrowed money is very much like a fire. If you treat it with respect and caution, that fire could keep you warm, it could cook your food, and it could make sure you don't get the runs from food poisoning. But if you're careless and don't pay close attention to it, it has the potential to burn down your house and ruin you financially. So I'm not gonna sit here and tell you, "Don't borrow money because that's bad," but do it responsibly and make sure it doesn't overtake your portfolio.

For example, when it comes to myself, as of now I own about eight and a half million dollars worth of real estate with about four million dollars worth of mortgage debt, with an average interest rate of three percent fixed for 30 years. Now, besides my personal residence, the rest of that debt is on cash-flowing rental properties that earn enough money to pay off that mortgage debt plus some profit. And that is really the extent of my debt—that's an amount to me where if the markets were to collapse, I would still be okay, and if I absolutely needed to pay it off, I could.

The point where people get in trouble is when they borrow too much and don't keep enough on the sidelines to cover themselves in the event of a downturn. Even though debt like this is gonna help you make way more money when the market is going up, it's gonna take even more from you when the market goes down, and I think that's something worth preparing for. So keep all of your debt to a reasonable point where it doesn't overtake too much of your portfolio. Make sure you could lock in these interest rates as low as you can for as long as you can—that way you know how much it's going to cost you every single month, and you could better plan for that.

Now fourth, under no condition should you be investing blindly. I honestly see this as a really big problem online, and if you go to Reddit, there's no shortage of people willing to believe anything they read just because someone came up with a really convincing argument on why a stock is suddenly about to go to the moon. Or maybe they see one person making a whole bunch of money, and they think to themselves, "Well, if that person can do it, and they're making money, so could I!" Like, I would venture to say that for every one person who bought GameStop under 30 dollars, there were 10 people who bought it above 100.

I think that's a telltale sign that you're not investing on any of your own fundamentals but instead because you saw it online and think it's going to go higher because everyone else says it will. Now maybe that's not the best example because it probably would have gone a lot higher had trading not been halted, but regardless, a lot of people bought into this simply because they wanted to make money as fast as possible and print attendees, and that is where people get burned.

Anytime you jump into an investment because someone else gave you a tip or you trust what they're doing, you're making an uneducated decision to basically trust somebody else with your money when they have absolutely nothing to risk for being wrong. If you feel comfortable handing someone else your money and telling them, "Here you go, go and make me money with this," then go for it. But if you wouldn't trust that person to have the passwords to your account, then you shouldn't blindly follow what they do.

Instead, what you should do is listen to as many different perspectives as you can, follow up on the recommendations, understand why they made those investments in the first place, and if you understand it and find that it fits with your own personal investing philosophy, then go for it. Otherwise, it's probably better not to invest in anything than blindly invest in someone else's recommendation without doing your own research.

Number five, I'm gonna be a boomer and say it: it helps to diversify. This means your portfolio is not just crypto, it's not just real estate, or it's not just stocks, but instead you spread a little bit of your money everywhere. Now I will admit, when I was a young Graham Stephan, I was so confident and happy about having 100 percent real estate. I worked all day as a real estate agent just to save that money to then go and buy real estate, and if I had any cash left over in my account, it was to go and buy more real estate—that was it. But it worked really, really well, so I was like, "Why should I do anything else?"

But as I got older, I realized that I could achieve pretty much the same returns and play it way safer by investing my money elsewhere. Over this last year, I placed a lot of emphasis on the stock market, crypto, and other alternative assets. As of now, my portfolio consists of 50 percent real estate, 28 percent stocks, 15 percent cash, 5 percent other, and 2 percent crypto. My next goal is to have just as much money invested in the stock market as I do in real estate.

Now, when it comes to this, concentrating your investments might very well help you expedite your wealth building early on, but after a while it becomes a lot more important to scale back on risk, diversify your investments, and just generally play it a little safer. I think for any long-term investor, this is probably something you should start doing sooner than later.

Number six is something I've definitely been guilty of, and that's keeping too much cash on hand. This is almost the exact opposite problem of everything else I previously talked about. But funny enough, it could end up losing you the most amount of money in terms of opportunity cost. Now don't get me wrong, it is important to keep enough cash on the sidelines to cover a six-month emergency fund, pay down margin debt as needed, or otherwise act as a buffer in the event something comes up. It's also reasonable to keep more cash in your account just in case a good opportunity comes up. But there's certainly a point where you could begin keeping too much cash out of the markets.

That's because over time, you lose value two ways: one, inflation lowers the relative value of your money by one to three percent every single year; or two, you miss out on the profit you otherwise would have made had you just invested your money instead. Now I will openly admit this, but had I invested all of my money as soon as I got it right into the markets immediately, I would be up way more than I am today.

I've kept a big chunk of cash on the sidelines because it gives me peace of mind knowing that if anything were to happen or come up, I have enough sitting there to be okay. But I knowingly pay a cost for that, and that comes with the territory. If you are playing it too safe and constantly keeping your money out of the markets just waiting for the perfect crash, I'll tell you that timing is just never gonna happen. Either the markets go up and you miss out, or the market crashes, but at the very bottom, there's a chance it's going to crash even further, so you're not going to buy in. And even once the market finally starts going up, you're going to anchor its value to the lowest point, so it's always going to be expensive relative to that.

So don't be that person. Instead, what you should do is analyze how much money you need to pay your bills for six months, assuming all of your income just dried up and went to zero. Then keep that amount in cash plus whatever else you absolutely need, and then after that, invest everything else into the markets consistently. Any excess cash you keep beyond that is going to come at a cost, so figure out what that cost is to you and then stick with that plan.

And lastly, we gotta talk about this one: it's not getting your two free stocks down below in the description. Just kidding, I'll show you my free stock shortly! But number seven would be do not panic sell. Now, I get it. There's no worse sinking feeling than opening up your account and seeing nothing but red and then being tempted to sell out and wait for it to drop so you could buy back even lower. But the truth is, it almost never works that way. Instead, once you sell, it opens up Pandora's box, and it becomes so much easier to sell other investments because you have the mindset: "If I sold this stock, then I may as well sell this stock too, and while I'm at it, I may as well sell that one and this one over here."

I'm sure, as we all know, timing the markets ends up pretty bad for a lot of people. My rule of thumb is this: if nothing is fundamentally different about your investment besides the fact that now it's down in price, don't sell. If you don't need the money, also don't sell it if you're in an emotional state of fear. Don't sell it. I've only sold a few stocks ever, and I have to say, I regret every single time I have sold, with the exception of one that was a pure gamble that just happened to pay off. But that was it, and if I could go back in time and just not sell anything, I wouldn't.

Everyone makes mistakes, but it's so important to learn from those mistakes so you don't keep repeating them over and over again. Only sell an investment when the fundamental reason you bought it has changed and you no longer believe in their long-term outlook. You could also go and look at this in reverse: would you pay the price it's currently trading at to buy the stock right now? If the answer to that is no, then why are you holding on to it? This just makes you really analyze every investment for what it is and makes you realize why you bought it in the first place. That way, you're not going to make any spontaneous choices that you might regret.

Now as far as where to go from here, I really believe that if you actually follow this advice and stick with it, it's going to be very difficult for you to lose money long-term. When you take all of these mistakes out of the equation, you give yourself the gift of time, knowledge, and safety. Investing doesn't need to be complicated, and it doesn't need to be confusing. All you need to do is buy into an S&P 500 index fund and hold long-term. There, I said it! Now the whole video is just a fancy way of ending up at the same point.

And now, of course, if you want to see the free stocks I got, let's open them up! So the first one we got is Zynga—not bad—$11.21. And then we got Ford, $11.76. So if you want your two free stocks, the link to that is down below in the description, and those stocks could be worth all the way up to $1,850. So with that said, you guys, thank you so much for watching. I really appreciate it! As always, make sure to destroy the like button, subscribe button, and notification bell. Also, feel free to add me on Instagram; I posted pretty much daily. So if you want to be a part of it there, feel free to add me there as my second channel, The Graham Stephan Show. I post there every single day I'm not posting here.

So if you want to see a brand new video from me every single day, make sure to add yourself to that. And lastly, if you want these two free stocks down below in the description, enjoy! Let me know which ones you get! Thank you so much for watching, and until next time!