3 Investing Mistakes to Avoid in 2026

Key Takeaways

• As private markets open up, the benefits of allocating to this asset class may have been overstated.
• Despite soaring valuations for key stocks like Nvidia, the full potential of AI is still uncertain.
• Unloved assets like China equities can surprise investors, showing that flows are not always a good predictor of investment returns.

Stock markets have been unpredictable this year and 2026 is likely to bring fresh challenges for investors.

Here are some investing mistakes to avoid next year.

1: Thinking Usual Investing Rules Don’t Apply to Private Markets

Private markets have made headlines in recent years as the convergence between private and public markets has accelerated. While private investments were once reserved for institutions and wealthy investors, access is growing rapidly for the retail investors, who might think that rules of investing do not apply to this asset class.

“The appeal of private markets rests on two main promises—one largely true and the other potentially misleading: the first is the ability to broaden your investment universe, and the second is reducing risk, particularly through lower volatility,” says Nicolò Bragazza, associate portfolio manager at Morningstar Wealth.

Access to private markets expands investors’ opportunities, offering exposure to assets, companies, or investments that would otherwise be out of reach, like private equity and private debt.

“Increasing the number of opportunities with diverse risk-return profiles is a clear positive and should be welcomed,” adds Bragazza. However, he says that the promise of lower risk can be deceptive and may overstate the benefits of allocating to private assets.

This phenomenon is often referred to as “volatility laundering,” a term coined by AQR founder Cliff Asness, which highlights the misleading notion that private assets are inherently less risky simply because historical data shows lower volatility.

“In reality, lower volatility is not an intrinsic feature of private markets but rather a byproduct of how performance is measured—typically through infrequent valuations in private funds,” says Bragazza.

“When we consider that target companies of private equity funds are generally higher leverage and smaller, and that private debt frequently involves borrowers with limited access to traditional capital markets, we realize that the underlying risk may actually be higher. So, while diversification looks good on paper, it doesn’t guarantee the same outcome when you eventually exit those investments.”

Bragazza reminds investors that the risk is determined by the fundamental characteristics of an investment and that changing the timing or method of measuring risk does not alter the risk itself.

2: Calling Assets We Don’t Like ‘Uninvestable’

China equity funds and ETFs were among the most unloved categories in 2025, with estimated outflows over €2 billion for the Morningstar Category China Equity—A Shares. Yet, since the beginning of 2024, Chinese equities have delivered a return of 56.5%, outperforming US equities at 46.1%, in US dollar terms.

“Some investors tend to label anything they dislike as ‘uninvestable’ and avoid including it in their portfolios. While certain investments occasionally deserve that label, it’s far less common than we might think. More often, when something is deemed ‘uninvestable’, it’s a signal to get curious and verify whether that perception is accurate—because behind that label, some of the best opportunities often hide,” says Bragazza.

Since the beginning of 2024, headlines have focused on the AI trade and the dominance of US equities. Yet, despite the noise, Chinese equities outperformed the US.

“Investors who resisted the headlines, endured volatility, and challenged ‘investability concerns’ were rewarded with strong gains.”

3: Being Overoptimistic About AI’s Potential

The growth of artificial intelligence has been the dominant force driving global stock markets since 2024. Some 10 years ago, Nvidia NVDA, Microsoft MSFT, Amazon AMZN, Meta Platforms META, Broadcom AVGO, Alphabet GOOGL, and Oracle ORCL made up 9.7% of the Morningstar US Target Market Exposure Index. Now their weight accounts for nearly 30% of the index, according to Morningstar calculations.

This means even those investors with substantial exposure to a broad market index are heavily exposed to AI-driven returns. The risk here though is that investors could be falling for overconfidence about AI’s potential.

“Whenever a new trend takes hold, investors tend to split into two camps: The optimists (bulls) and the pessimists (bears), each dominating media and conversations with their binary views,” says Bragazza.

“Taking sides may seem tempting, but it carries significant risk. The full potential of AI—and its long-term impact on the economy—remains uncertain and not yet fully understood. For investors, a more prudent approach is to adopt a cautiously optimistic stance: Balancing the risk of overvaluation in certain areas against the opportunities ahead.

“Even when the growth opportunity is undeniable, an investment can only be considered good if it comes at a reasonable price,” he adds.