Common Beginner Mistakes

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What You’ll Learn

• The top 20 mistakes beginners make (and how to avoid them)
• Real examples of each mistake and the cost
• Why these mistakes feel right in the moment
• How to recognize when you’re about to make a mistake
• The checklist to prevent costly errors

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Why This Matters

• 💸 You don’t want to learn by losing money
• 🎓 You want to learn from others’ mistakes, not your own
• 🛡️ You want to protect yourself from catastrophic errors
• ⚡ You want to fast-track your learning
• 📈 You want to be in the 10% who succeed

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Mistake #1: No Emergency Fund

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The Scenario

• Sarah has $10,000 in savings
• She invests all $10,000 in stocks
• “I’ll make it grow faster in the market!”

• Car breaks down, needs $3,000 repair
• She has no emergency fund
• Forced to sell stocks to pay for repair
• Stock market is down 10% that month
• She sells $3,000 worth of stocks (actually sells$3,333 worth to get $3,000 after losses)

• Lost $333 immediately
• Lost position in market that would have recovered
• Now has no emergency fund AND smaller investment

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Why It Happens

• Excitement about investing
• “Nothing bad will happen”
• Underestimating unexpected expenses
• Impatience (want to start investing NOW)

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The Fix

• Monthly expenses: $2,500
• × 6 months = $15,000 emergency fund required
• Have $20,000 total? →$15k in savings, $5k to invest
• Have $10,000 total? → Build emergency fund first, invest later

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Mistake #2: Investing Money You’ll Need Soon

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The Scenario

• Mike is saving for house down payment
• Needs $50,000 in 2 years
• Has $45,000 saved
• “If I invest in stocks, I can turn it into $55,000!”

• Stock market drops 20%
• His $45,000 is now$36,000
• Can’t afford house down payment
• Must wait another 2 years to save up again

• Missed house purchase
• 4-year delay instead of 2-year plan
• Heartbreak and stress

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Why It Happens

• Greed (“I can make it grow faster”)
• Impatience
• Not understanding time horizon
• Confusing investing with saving

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The Fix

• Need money in 0-1 years: High-yield savings account
• Need money in 1-3 years: Bonds or savings
• Need money in 3-5 years: Mix of bonds and conservative stocks
• Need money in 5+ years: Stocks

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Mistake #3: No Diversification (All In on One Stock)

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The Scenario

• Jessica has $20,000 to invest
• Loves Tesla
• Puts all $20,000 in Tesla
• “Tesla is the future! Can’t lose!”

• Tesla drops 65% (this actually happened in 2022)
• Her $20,000 is now$7,000
• Portfolio destroyed

• What if Elon Musk dies in accident?
• What if Tesla goes bankrupt?
• What if competitor beats them?
• 100% loss is possible with single stock

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Why It Happens

• Overconfidence in one company
• “I know this company”
• FOMO on exciting stock
• Not understanding risk
• Confusing concentration with conviction

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The Fix

• No more than 5-10% in any single stock
• Own at least 10-20 different companies
• OR use index funds (instant diversification across 500+ companies)

• Option 1 (beginner-friendly):
  • $15,000 in VOO (S&P 500 index)
  • $5,000 across 5 individual stocks ($1,000 each = 5% each)
• Option 2 (even safer):
  • $20,000 in VTI (Total Market index)
  • Own 4,000+ companies automatically

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Mistake #4: Chasing Hot Stocks (FOMO)

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The Scenario

• Stock XYZ is $50
• Tuesday: XYZ up 20% to $60
• Wednesday: XYZ up another 15% to $69
• Reddit is going crazy: “XYZ to $100!”
• You FOMO in at $69
• “Don’t want to miss out!”

• XYZ crashes to $45 (reality sets in)
• You’re down 35% in one day

• Bought at top
• Sold at bottom (or holding massive loss)
• Classic beginner trap

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Why It Happens

• FOMO (fear of missing out)
• Seeing others make money
• Recency bias (“it’s going up, so it will keep going up”)
• Herd mentality
• Not understanding valuations

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The Fix

1. Never buy stock that’s up 20%+ in a week
2. If everyone is talking about it, it’s probably too late
3. Wait for pullback (at least 10% drop from recent high)
4. Research BEFORE buying, not AFTER seeing it spike
5. Set price alerts instead of panic buying

• Create watchlist of stocks you want
• Wait for them to go ON SALE (market drops)
• Buy when others are panicking, not celebrating

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Mistake #5: Panic Selling During Market Drops

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The Scenario

• Portfolio: $100,000
• Market crashes 30% (like COVID in March 2020)
• Portfolio drops to $70,000

• “I’ve lost $30,000!”
• “It’s going to zero!”
• “I need to sell before I lose more!”
• Sells everything at $70,000

• Market recovers over next 6 months
• Portfolio would have been back to $100,000
• By end of year, would have been $115,000
• Instead, locked in $30,000 loss and missed$45,000 recovery

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Why It Happens

• Loss aversion (losses hurt 2x more than gains)
• Recency bias (“market is crashing, will never recover”)
• Fear and panic
• No historical perspective
• Checking portfolio daily

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The Fix

1. Don’t check portfolio (ignorance is bliss)
2. Zoom out to 50-year chart (every crash recovered)
3. Remember: Market has crashed 30%+ over 20 times, recovered every time
4. Do the opposite: BUY MORE if you have cash
5. Ask Sage for perspective

I will NOT sell during market crashes.
I will hold for at least 5 years minimum.
Market drops are normal and temporary.

Signed: ___________

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Mistake #6: Trying to Time the Market

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The Scenario

• Have $10,000 to invest
• “Market feels high, I’ll wait for a correction”
• Wait for 10% drop before investing

• Market up another 15%
• “Okay, now it’s REALLY high, will definitely crash soon”
• Still waiting

• Market up 25% total
• Still waiting for crash
• Missed entire year of gains

• Market finally drops 10%
• “Wait, it might drop MORE, I’ll wait”
• Market immediately recovers and goes up 20%
• Missed it again

• Sat in cash for 2 years
• Missed 40% gains
• “Waiting for perfect time” cost $4,000+ in losses

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Why It Happens

• Trying to be “too smart”
• Thinking you can predict market
• Overconfidence
• Paralysis by analysis
• “Waiting for perfect entry”

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The Fix

• Best 10 days: Missing them over 20 years reduces returns from 10% to 5%
• Those best days often immediately follow worst days
• Impossible to predict when they’ll happen

• Invest as soon as you have the money
• OR dollar-cost average over 3-6 months if you’re nervous
• Never try to “wait for the dip”

• Have $12,000? Invest$2,000/month for 6 months
• Smooths entry price
• Guarantees you won’t miss major gains while “waiting”

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Mistake #7: Trading Too Frequently (Over-Trading)

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The Scenario

• Start with $10,000
• Buy Apple for $10,000
• Apple up 5% in 2 days
• Sell for $10,500 (“Take profits!”)
• Buy Tesla for $10,500
• Tesla down 3%
• Sell for $10,185 (“Cut losses!”)
• Buy Nvidia for $10,185
• Repeat 20 more times

• Made 25 trades
• Account is $9,200
• Lost $800 (-8%) in a month when market was up 5%

• Transaction costs (bid-ask spread)
• Emotional decisions (sold winners too early, held losers too long)
• Short-term capital gains taxes (24-37%)
• Stress and time wasted

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Why It Happens

• Impatience
• Need for action/excitement
• Overconfidence (“I can beat the market”)
• Boredom
• Confusing activity with productivity

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The Fix

• Buy quality stocks or index funds
• Hold for years, not days
• Ignore daily price movements
• Only sell when fundamentals change (rarely)

• Active traders underperform buy-and-hold by 3-5% annually
• More trades = less money
• Boring beats exciting in investing

• Before buying, commit to holding at least 1 year
• If you’re not willing to hold 1 year, don’t buy

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Mistake #8: Ignoring Fees

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The Scenario

• Grows to $1,744,940

• Grows to $1,327,777

• Grows to $900,000

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Why It Happens

• Not understanding compound interest on fees
• “1% doesn’t sound like much”
• Trusting fund managers (“they’re worth it”)
• Not doing the math

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The Fix

• VOO, VTI, VXUS: 0.03-0.08% fees
• Avoid actively managed funds (1-2% fees)
• Every 1% in fees costs ~25% of final wealth

Ask Sage:
"What are the fees on [Fund Name]? Am I paying too much?"

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Mistake #9: Not Reinvesting Dividends

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The Scenario

• Dividends automatically buy more shares
• More shares = more dividends next year
• Compounds over time
• After 30 years: $174,494

• Takes $300 cash every year
• Spends it on random stuff
• Share count never grows
• After 30 years: $10,000 (plus$9,000 in dividends spent = $19,000 total)

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Why It Happens

• Treating dividends as “free money”
• Not understanding compound interest
• Short-term gratification
• Forgetting to set automatic reinvestment

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The Fix

1. Log in to brokerage
2. Navigate to account settings
3. Turn on “Dividend Reinvestment” (DRIP)
4. Never turn it off

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Mistake #10: Buying Individual Stocks Before Index Funds

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The Scenario

• Buys 5 random stocks they heard about
• Netflix, Zoom, Peloton, GameStop, AMC
• “These are popular, they’ll do great!”

• Netflix: -50%
• Zoom: -60%
• Peloton: -80%
• GameStop: -40%
• AMC: -70%
• Portfolio: Down 60%

• Up 10%

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Why It Happens

• Overconfidence
• “Stock picking is fun”
• Not understanding professional investors rarely beat index
• Thinking investing is about picking winners

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The Fix

• 80-100% in index funds (VOO, VTI)
• 0-20% in individual stocks (optional, for learning)

• 90% of professionals can’t beat the index long-term
• You’re unlikely to be in the 10% as beginner
• Index funds guarantee average returns (which is great!)
• Individual stocks guarantee you’ll do worse than average (on average)

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Mistake #11: Following “Hot Tips”

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The Scenario

• Coworker: “I just made 50% on Stock ABC! You should buy!”
• You: “Sounds great!” Buys $2,000

• Stock down 30%
• Coworker already sold yesterday (made profit)
• You’re left holding the bag

• Stock down another 20%
• Total loss: 44%
• $880 gone

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Why It Happens

• FOMO
• Trusting others without research
• Not realizing tip-giver already profited
• Thinking tips are “inside information”

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The Fix

1. Never act on tips without your own research
2. If someone is telling everyone, it’s too late
3. By the time you hear it, professionals already acted
4. If it was good, they wouldn’t tell you (they’d buy more themselves)

• Research your own investments
• Ask Sage to analyze any stock before buying
• Have conviction based on fundamentals, not tips

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Mistake #12: Checking Portfolio Every Day

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The Scenario

• Monday: +1.2% (happy)
• Tuesday: -0.8% (slightly worried)
• Wednesday: -1.5% (anxious)
• Thursday: +0.5% (relieved)
• Friday: -2.1% (panic!)

• Emotional state: Calm
• Checks once after 3 months: +7%
• Happy and stress-free

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Why It Happens

• Curiosity
• Anxiety
• Addiction to checking
• Not trusting the process
• Boredom

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The Fix

• Daily: Terrible (60% of days are red)
• Weekly: Bad (still too much noise)
• Monthly: Okay
• Quarterly: Perfect
• Yearly: Also perfect

• Less stress
• Fewer emotional decisions
• Better sleep
• More time for actual life

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Mistake #13: No Written Investment Plan

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The Scenario

• “I’ll just buy some stocks and see what happens”
• No strategy, no allocation, no rules

• Market drops 15%
• Panic sells (no plan said to hold)
• “I should have had more bonds”

• Market recovering
• Buys back in (higher than sold)
• “I should have bought more during drop”

• Random portfolio, no consistency
• Returns: 3% (market did 10%)
• Missed 7%/year due to emotional decisions without plan

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Why It Happens

• Seems unnecessary (“I’ll just figure it out”)
• Overconfidence in discipline
• Not understanding emotions override logic

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The Fix

My Investment Plan:

1. Asset Allocation:
   - 80% stocks (VOO)
   - 20% bonds (BND)

2. Contributions:
   - $500/month on the 1st

3. Rules:
   - Never sell during market drops
   - Rebalance annually in January
   - Only check portfolio quarterly
   - If market drops 20%+, BUY MORE

4. Timeline:
   - Hold for 30 years until retirement

Signed: ___________
Date: ___________

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Mistake #14: Margin Trading (Borrowing to Invest)

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The Scenario

• Have $10,000
• Broker offers margin: Borrow $10,000 more
• Invest $20,000 total
• “Double the money, double the gains!”

• Market drops 30%
• Your $20,000 is now$14,000
• You owe $10,000 to broker
• Your equity: $4,000
• Lost 60% of your original money (market only dropped 30%)

• Broker: “Margin call! Deposit $3,000 or we sell everything”
• You don’t have $3,000
• Broker sells everything at worst price
• You’re left with $1,000

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Why It Happens

• Greed
• “Leverage multiplies gains”
• Forgets it also multiplies losses
• Overconfidence

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The Fix

• No borrowed money
• No credit cards
• No loans
• No margin

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Mistake #15: Forgetting About Taxes

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The Scenario

• Buy stock for $10,000
• Sell at $15,000 (6 months later)
• Profit: $5,000
• Celebrate!

• Short-term capital gains tax: 24% (your tax bracket)
• Owe $1,200 in taxes
• Actual profit: $3,800
• Forgot about taxes, already spent $5,000
• Oops, now owe IRS $1,200

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Why It Happens

• Not understanding short-term vs long-term capital gains
• Forgetting profits are taxable
• Spending before paying taxes

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The Fix

• Hold < 1 year = short-term capital gains (taxed at 24-37%)
• Hold > 1 year = long-term capital gains (taxed at 15-20%)
• Hold at least 1 year to cut taxes in half

• Use Roth IRA (no taxes ever)
• Use Traditional IRA (defer taxes until retirement)
• Tax-advantaged accounts = compound faster

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Mistake #16: Revenge Trading After Losses

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The Scenario

• Lost $500 on bad trade
• Emotional: “I need to make it back”
• Makes risky bet with $1,000
• Loses another $800

• Now down $1,300 total
• “I HAVE to make it back NOW”
• Goes all-in on speculative stock
• Loses another $1,500

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Why It Happens

• Emotional reaction to loss
• Loss aversion (can’t accept loss)
• “Need to get even”
• Tilting (poker term for emotional recklessness)

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The Fix

1. Step away for 24-48 hours
2. Don’t make ANY trades
3. Accept the loss (it happens)
4. Learn from mistake
5. Move forward with plan, not emotions

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Mistake #17: Not Learning / Staying Ignorant

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The Scenario

• “Investing is confusing, I’ll just copy what others do”
• Doesn’t research
• Doesn’t learn fundamentals
• Buys random stocks friends mention

• Portfolio is mess
• No idea why some positions up, others down
• No strategy, just guessing
• Returns: -2% (market did +60%)

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Why It Happens

• Laziness
• “I don’t have time”
• Thinks learning is optional
• Wants results without effort

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The Fix

• Read these workflows (you’re doing it!)
• Ask Sage questions
• Paper trade first
• Read one investing book
• Watch educational content

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Mistake #18: Believing Get-Rich-Quick Schemes

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The Scenario

• Buys course
• “Strategy” is high-risk options trading
• Tries it with $1,000
• Loses $900
• Spent $997 on course
• Total loss: $1,897

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Why It Happens

• Greed
• Impatience
• “Too good to be true” sounds appealing
• Desperation

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The Fix

• There are no get-rich-quick schemes in investing
• If someone had secret to 10,000% returns, they’d use it (not sell it)
• Anything promising massive returns quickly is scam
• Real wealth takes time (years/decades)

• “Get rich fast”
• “Secret strategy”
• “Limited time offer”
• “Guaranteed returns”

• 10% annual returns compound to massive wealth
• It’s boring
• It takes decades
• It works

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Mistake #19: Not Asking for Help

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The Scenario

• Confused about diversification
• Doesn’t ask Sage
• Doesn’t research
• Just guesses

• Made several avoidable mistakes
• Could have asked Sage each time
• Sage would have warned them
• Lost $2,000 to mistakes that free AI could have prevented

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Why It Happens

• Pride
• “I should know this”
• Embarrassment about asking “basic” questions
• Not realizing Sage is available 24/7

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The Fix

• Ask Sage ANYTHING
• No judgment
• Free guidance
• Available instantly
• Prevents thousands in mistakes

"Sage, I want to buy Tesla with all my money. Should I?"
(Sage: No! Too risky! Diversify instead!)

"Sage, market just dropped 15%. Should I sell?"
(Sage: No! Hold! This is normal volatility!)

"Sage, is this stock a good deal?"
(Sage: Let's analyze the fundamentals together...)

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Mistake #20: Giving Up After First Loss

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The Scenario

• First investment: $1,000 in Stock XYZ
• Did some research, felt good

• Stock drops 15%
• Portfolio: $850
• “I’m terrible at this. Investing doesn’t work. I quit.”
• Sells everything, never invests again

• That stock is up 200% (would be $3,000)
• S&P 500 up 150% (would be $2,500)
• By quitting after one bad month, missed $1,500-2,000 in gains

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Why It Happens

• Overreaction to normal volatility
• Expected perfection
• Didn’t understand 74% of years are up, 26% are down
• Took loss personally

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The Fix

• You WILL have losing trades
• You WILL experience market drops
• Not every investment works out
• That’s okay and normal

• Professionals have 40-60% losing trades
• S&P 500 is down 26% of years
• Losses are part of the process
• Stay in the game long enough, time works for you

• Commit to staying invested for at least 5 years before judging results
• One bad month/year means nothing
• Decades matter, not months

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The Ultimate Beginner Checklist

• ✅ Do I have 3-6 months emergency fund?
• ✅ Is this money I won’t need for 5+ years?
• ✅ Can I afford to lose 50% without life impact?

• ✅ Am I investing more than 10% in this one position?
• ✅ Do I own at least 10 different companies (or index fund)?
• ✅ Is my portfolio balanced, not concentrated?

• ✅ Am I making this decision calmly (not in panic or excitement)?
• ✅ Would I make this same decision tomorrow? Next week?
• ✅ Is this part of my plan, or emotional reaction?

• ✅ Do I understand what this company does?
• ✅ Did I research, or am I acting on a tip?
• ✅ Did I ask Sage to review my decision?

• ✅ Am I chasing a hot stock (up 20%+ recently)?
• ✅ Am I trying to time market, or staying consistent?
• ✅ Have I held this for at least 1 year (taxes)?

• ✅ Are the fees < 0.20%?
• ✅ Do I understand the tax implications?
• ✅ Am I using tax-advantaged accounts first?

• ✅ Does this fit my written investment plan?
• ✅ Do I have a sell strategy (or am I holding long-term)?
• ✅ Am I investing consistently, not randomly?

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Success Checklist

• ✅ I have emergency fund before investing
• ✅ I won’t invest money needed within 5 years
• ✅ I’ll diversify (never more than 10% in one stock)
• ✅ I won’t chase hot stocks (FOMO)
• ✅ I won’t panic sell during drops
• ✅ I won’t try to time market (I’ll stay invested)
• ✅ I won’t over-trade (buy and hold strategy)
• ✅ I’ll use low-fee index funds
• ✅ I’ll reinvest dividends automatically
• ✅ I’ll start with index funds, not individual stocks
• ✅ I won’t follow hot tips without research
• ✅ I’ll check portfolio monthly or quarterly (not daily)
• ✅ I have written investment plan
• ✅ I won’t use margin (no borrowed money)
• ✅ I’ll hold at least 1 year for tax benefits
• ✅ I won’t revenge trade after losses
• ✅ I’ll invest time in learning
• ✅ I’ll reject get-rich-quick schemes
• ✅ I’ll ask Sage when uncertain
• ✅ I won’t quit after first loss (long-term commitment)

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What’s Next?

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Final Pre-Investor Education

• Building Your Investment Philosophy →

• Your First $100 in ETFs →
• [Paper Trading: Practice Without Risk →](../Getting Started/paper-trading-practice)

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The Bottom Line

• ❌ No emergency fund
• ❌ Not diversified
• ❌ Emotional decisions (panic selling, FOMO buying)
• ❌ Chasing returns
• ❌ No plan or discipline

• ✅ You learned from others’ mistakes
• ✅ You have a plan
• ✅ You understand the pitfalls
• ✅ You’ll ask Sage when uncertain
• ✅ You’re patient and disciplined