7 common investing mistakes

Mistakes are common when investing, but some can be easily avoided if you know what to look out for. This article explores 7 common investing mistakes and how you can avoid making them.

Investing doesn’t need to be difficult. Financial institutions would have us all believe that investing is only available to the elite. That it’s only possible for those with the knowledge and the skills.

But that is simply not true.

Investing is becoming more and more accessible to everyday investors, with simpler platforms, cheaper brokerage fees and a wider range of options.

But these things alone don’t automatically make investing easy. The road to success is still fraught with challenges and hurdles to overcome.

Let’s look at 7 mistakes that are commonly made by new investors. But more importantly, let’s look at what you can do to avoid making them yourself. 

1. Not getting started.

Investing can feel risky. It can feel overly complicated. It can feel overwhelming. 

There are so many possible excuses for not starting to invest. “I don’t have the time”. “I don’t understand all this jargon”. “I don’t want to lose all my money”.

But that’s exactly what they are. Excuses. The reasons we give for putting it off or not committing.

Ask almost any investor and they’ll tell you that they wished they’d started investing sooner. 

But you’ll find it difficult to find anyone who looks back and says “I wish I’d waited longer before I started investing”.

Yes, there is risk involved in investing. But you could argue that there’s even more risk involved in not investing. Every day, week, month or year that goes by is potential gains disappearing down the drain. 

For example, let’s say you thought about investing $1,000 a year ago but decided against it for any of the reasons we listed above. Let’s say the investment increased by 10% over the course of the next year. Your investment would now have been worth $1,100. You’ve just robbed your future self of $100.

How can you avoid making this mistake?

Start small. If you’re nervous about the risk, start with small amounts of money. Test the water. Then as your knowledge and confidence grows, you can start increasing the amount you invest. 

2. Not having a plan.

“If you don’t know where you’re going, you will probably end up somewhere else”.

This is certainly true with investing.

Without a long term plan you can end up making a bunch of separate decisions that don’t work together. You could end up with investments that are too risky or not risky enough. Or you could end up with a portfolio that’s too complicated and difficult to manage.

How can you avoid making this mistake?

Make a plan. Consider the following:

• Investment goals. What are you aiming to achieve?

• Time horizon. How long do you plan to invest for? When do you expect to need the money?

• Risk tolerance. How much risk are you prepared to take?

• Investment strategy. How much are you going to invest? How often?

Remember to revisit your plan periodically to check your progress and make any necessary adjustments.

If you don't feel qualified to do this, seek a reputable financial planner or advisor.

3. Expecting too much, too soon.

Building wealth takes time and patience.

Going into investing expecting to get rich quick is a recipe for disaster. The chances are you’ll end up disappointed, or even worse, broke.

How can you avoid making this mistake?

Be realistic. Setting targets that reflect your goals and risk tolerance can help you manage your own expectations.

Remember to think long term. For most people the biggest factor in growing an investment portfolio is time. The magic of compound growth means that as your portfolio grows, you are making a percentage return on the money you have invested, PLUS the money you have gained through having this money invested. You make a profit on your profits.

4. Trying to time the market.

Are you an expert trader?

No? Then you probably shouldn’t be trying to time the market.

Successfully timing the market is extremely difficult, and even highly trained stock traders aren’t able to do it all of the time. It takes a lot of research, experience and luck to even stand a chance.

How can you avoid making this mistake?

Time IN the market beats timing the market.

Markets will go up and down over time. That’s how they work. But if you have conviction in what you’re investing in and you’re planning to be in it for the long haul, then short term changes shouldn’t matter to you.

‘Dollar Cost Averaging’ is a popular and easy way of regularly investing without worrying about whether the market is up or down. Set a regular amount to invest at regular intervals (e.g. monthly), and make sure you invest it regardless of what’s happening in the market. Even better, automate it. Some brokers, like Pearler, offer this feature to help investors make their investing as simple as possible,

5. Lack of diversification.

A lack of diversification is like putting all your eggs in one basket.

If you invest in just one company or a small number of companies, you put yourself at risk if something bad happens. If one of your companies underperforms it will likely have a big impact on your total portfolio and could affect your financial future.

Diversification is the key to managing your risk.

How can you avoid making this mistake?

A diversified portfolio can help lower your overall risk and get more stable returns over time.

Diversifying well means investing in different types of assets. This can involve a mix of different asset classes - shares, bonds, commodities etc. It can also involve a mix of different types of companies within an asset class. For example, companies from different countries, or different industry sectors.

Index funds and ETFs are a great way of getting diversification without the complexity of investing in lots of individual companies. ETFs can contain hundreds or even thousands of companies, meaning that if a few of them underperform it will only have a relatively small impact on the overall fund.

6. Fear of Missing Out (FOMO)

In an age of constant information and communication, it can be difficult to avoid the temptation of the next shiny thing.

The FOMO can be real. What if it takes off and I miss out?!

But following the crowd can easily end in disappointment…and it often does.

How can you avoid making this mistake?

Stick to your investment plan. You made it for a reason and it shouldn’t change just because someone on Insta or TikTok is telling you about (or selling) the next big thing.

Do you own research, work out how risky the investment and decide if it fits into your plan. Take a deep breathe, sleep on it and remember investing is a marathon, not a sprint.

7. Emotional decisions

Investing can be emotional. After all, it is your money on the line. It can be difficult to keep you emotions under control, especially when you see prices drop and your portfolio quickly turning red.

But investing and emotions don’t mix well.

How can you avoid making this mistake?

I’m going to sound like a broken record here, but remind yourself of your investment plan. Remind yourself why you’re investing and how long you’re investing for. Remind yourself that markets go up and down naturally. And ask yourself “has anything fundamentally changed for my investments? Or is this just the market doing its thing?”. Chances are it’s the latter.

Mistakes are normal. What’s important is how we learn from them.

We’re all human and we all make mistakes. Life is about learning from our mistakes, and investing is no different. Try to look at your mistakes as learning opportunities. How can you do it differently next time?