TikTok’s Humphrey Yang Says These 10 Investing Choices Are Killing Your Returns

Investing is typically a pillar of long-term wealth creation. It doesn’t have to be difficult to earn a solid return over time, but people often over-complicate investing or make mistakes that shortchange their gains.

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Once you know what to watch out for, though, you can increase your chances of earning higher long-term returns. As Humphrey Yang, a former financial advisor and current entrepreneur, explained in a recent YouTube video, you should avoid these 10 common investing mistakes:

1. Buying individual stocks

Many people think of investing as finding the next hot stock, but it can be a mistake to try to pick a handful of individual companies to invest in. That’s not to say you should never invest in individual stocks, but you can often improve returns by investing in a mix of low-cost, diversified ETFs or index funds, suggested Yang.

Part of the problem is that picking stocks that outperform market averages is incredibly hard. Yang pointed to a study showing how even professional investment managers rarely beat the market.

2. Ignoring expense ratios

The expense ratio might seem like financial jargon, but it’s a cost you don’t want to overlook. This ratio is the fee you pay a fund manager and varies significantly across investment options.

Yang highlighted an SEC analysis showing that over 20 years, a $100,000 investment in a fund with a 1% expense ratio would net almost $30,000 less than a fund with a 0.25% expense ratio, based on a 4% annual return before fees.

3. Trying to time the market

It’s common to try to find the perfect time to invest, but you might be sitting on the sidelines while missing out on important returns. It’s more important to try to optimize time in the market — i.e., invest for longer — instead of timing the market, said Yang.

Consider a Wells Fargo analysis that showed how missing the top 30 days of S&P 500 index returns over the last 30 years would bring the index’s average annual return down from 8% to 1.8%, the latter of which didn’t even surpass the inflation rate.

4. Hiring a professional financial advisor for investing

This might sound contradictory coming from Yang, a former financial advisor, but in his view, investing was the easiest part of his job. Many financial advisors simply put you in ETFs and index funds that you can access on your own for a lower cost.

Instead, said Yang, a financial advisor is a better fit for things like financial planning, estate planning, and tax planning. If you do want to use a financial advisor for investing, consider using one with a more affordable model, like charging a flat-fee rather than a percentage of assets, said Yang.

5. Investing based on emotions

Many people make the mistake of investing based on their emotions, said Yang. If you give into emotions like fear or greed, you often end up selling low and buying high, which is the opposite of what you want to do to maximize investment returns.

6. Trying to optimize for returns

Because it’s so hard to beat the market over the long run, you often come out ahead of the average investor by simply investing for longer, rather than trying to aim for the highest possible return.

Yang pointed to a clip from Steven Bartlett’s podcast, The Diary of a CEO. In this clip, Morgan Housel, author of The Psychology of Money, explains the value of endurance in investing. Just earning average returns for an above-average period can actually result in being amongst the top 5% of investors, he said.

7. Not reinvesting dividends

Dividends can be a good way to earn passive income for some investors, but what you do with them matters. If you’re withdrawing dividends as cash, that can limit your long-term gains compared to reinvesting your dividends.

As Yang noted, it’s often a simple click of a button within your brokerage account to turn on automatic dividend reinvestment.

8. Not having the right asset allocation for your age

The mix of assets you invest in, such as stocks and bonds, should often vary based on your age.

In general, said Yang, someone who’s 18 probably doesn’t want to be 100% invested in bonds, because that’s too risk-averse for most, considering you have time to ride out market swings. In contrast, someone who’s 65 probably doesn’t want to just hold a handful of individual stocks, because that’s concentrating too much risk in a few assets that can be volatile.

9. Trading options

You might see options trading as a ticket to riches, but these can be highly speculative investments. Some get lucky and hit a few winners, as Yang himself noted that he did by trading GameStop options in 2021. But just a few years later, Yang ended up losing all of those gains and has negative returns overall for his options trading.

In other words, it’s very hard to come out ahead with options, even for a professional like Yang.

10. Not investing in index funds

As mentioned, index funds can be the solution to a lot of common investing mistakes. While there are different types of index funds, you can often find well-diversified ones, such as those that track the S&P 500, with extremely low expense ratios.

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As Yang pointed out, these are typically easy to buy, and if you can’t find a particular index fund through your brokerage, there’s generally an ETF equivalent you can invest in.

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