Investment & Finance

Mastering Automated Investing: Pitfalls to Avoid

Michael Gavin
January 17, 2024
5 minute read
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With unpredictability in the market, automated investing solutions have come to revolutionize the financial landscape. Automated investing, usually AI-based, offers convenience and efficiency, especially when managing risk, to investors experienced and inexperienced. In another alphaAI guide, we’ll explore the ins and outs of automated investing and explain some mistakes to avoid so you can make informed decisions along your financial journey. 

Lack of Understanding:

One of the primary missteps investors make is diving into automated investing without a solid understanding of how it works. Before entrusting your funds to algorithms, take the time to comprehend the underlying strategies and algorithms employed by the automated tools. Knowledge is your best defense against unexpected outcomes.

Overlooking Fees:

While automated investing platforms are often praised for their lower fees compared to traditional financial advisors, it's crucial to scrutinize the fee structures. Some platforms may have hidden costs or tiered fee systems that can eat into your returns over time. Carefully examine and compare fee structures to ensure you're getting value for your money.

Neglecting Regular Monitoring:

Automated investing doesn't mean you can set it and forget it entirely. Markets change, and economic landscapes evolve. Regularly review your automated portfolio to ensure it aligns with your financial goals. Adjustments may be necessary to adapt to shifting market conditions or changes in your personal circumstances.

Ignoring Risk Tolerance:

Automated investing platforms often prompt users to assess their risk tolerance at the beginning, but investors sometimes underestimate or overestimate their ability to handle risk. Reevaluate your risk tolerance periodically, especially during significant life changes, to ensure your investment strategy remains in line with your comfort level.

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Failing to Diversify:

Diversification is a fundamental principle of sound investing, yet some automated investors may overlook this crucial aspect. Overconcentration in a particular sector or asset class can expose your portfolio to unnecessary risk. Ensure your automated strategy incorporates diversification to spread risk and enhance long-term stability.

Emotional Reactions to Market Volatility:

Automated investing is designed to eliminate emotional decision-making, but investors may still succumb to panic or euphoria during periods of market volatility. Establish a disciplined approach to stick to your investment strategy, regardless of short-term market fluctuations. Emotional reactions can lead to hasty decisions that may undermine your long-term goals.

Failure to Rebalance:

Market fluctuations can cause your portfolio to deviate from its original allocation. Failing to rebalance periodically can result in an unintended shift in risk exposure. Set a schedule for rebalancing or use automated tools that offer this feature to maintain your desired asset allocation.


While automated investing offers an innovative and efficient way to grow your wealth, avoiding common mistakes is crucial for long-term success. By understanding the nuances, regularly monitoring your portfolio, and staying disciplined, you can harness the power of automated investing to achieve your financial goals. Remember, an informed investor is an empowered investor.

alphaAI Helps You Navigate Automated Investing:

While AI sometimes gets difficult to understand, alphaAI’s software makes automated investing a breeze by helping you overcome many of the pitfalls discussed. Our leading-edge AI technology helps you automatically adapt to changing market conditions so you’re always optimally positioned to achieve your financial goals.

Learn more on our website.

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