In life, it’s important to make mistakes as that’s how we learn. However, investing mistakes can be very costly and can leave you feeling underwhelmed. These mistakes are great opportunities to learn but it’s important to try to minimize your losses as much as you can. As a new investor, you’re not alone though. Even experienced investors make mistakes from time to time, it’s a normal part of the process
There are a number of mistakes that are often made by new investors and can be avoided. Here are some of the common errors that are made and how you can avoid them:
1. Attempting to time the market
When it comes to investing, the stock market can go up as well as down. Many financial experts online speculate on the future movements of the stock market which can influence other investors to either buy or sell. There are patterns in the movement of the stock exchange over time that help financial experts to make those speculations. Despite all of this, it is still hard to determine stock exchange movement with any kind of certainty. Other factors such as politics, business acquisitions and even global crises can influence these movements.
Given this volatility, it can be hard to predict the next movements of the stock market, especially as a new investor. As a new investor, you shouldn’t try to time the market as to when you should buy or sell. Though you could find yourself lucky and make money in the short term, you will more than likely find yourself at a loss by doing this. Instead, it’s wise to make investment decisions for the long term.
2. Seeing it as a way to ‘get rich quick’
Investing can be exciting and it can be a great feeling when you begin to see returns on your investment options. You may hear chatter online around investment options or stocks that are set to skyrocket and make you money in the short term. It is very risky to follow the advice of others online and much of that advice can lead to you losing money instead of gaining it. Remember, if it sounds too good to be true, it often is.
Now while, on occasion, you can make money in the short term, it is important to shift your thinking to long term investing. Building wealth can take time and investing for the long term can allow you to take advantage of compound interest as well as growth in the markets.
3. Not knowing your why
Not having or knowing the reason why you’re investing could set you up for failure. The reason being is you’ll have no plan for your investments and may likely invest your money anyhow. It is important to have an idea of what you want to use that money for in the future. Create some goals – are you planning for retirement? Are you saving up for a property? These goals will help you when it comes to creating your investment strategy. By having clear goals, you will be able to work out:
- How much do you want to invest
- How often do you want to make investment deposits
- Your risk tolerance
- Which investment options you are going to invest in to
This will give you a clearer understanding and will help to guide your investment decisions.
4. Not diversifying your investment portfolio
No one’s investment portfolio is going to look exactly the same. The reason being is that everyone has different goals that they’re trying to achieve with their investments. Everyone’s investing goals, lifestyle and current circumstances are all different. But one thing that all investors should have in common is a diversified portfolio. It is never a good idea to invest all of your money into one type of investment.
While it may do well for a while, you may stand to lose the majority, if not all of your money if things take a turn for the worst. This is why it’s important to have investments that lie within different sectors and are made up of a variety of asset classes. Balancing out your investments in this way will protect you against any major downturns. To create your own balanced portfolio, you may choose to invest in a range of different investment options such as stocks, ETFs, bonds, commodities and even cryptocurrencies. These various investment options have different risk levels attached to them so it, therefore, helps to balance your investment portfolio.
5. Investing too much money before you’re ready
You don’t need thousands of pounds to start investing. One reason is that many investing platforms allow you to begin your investing journey with as little as £10. Some platforms even allow you to round up the spare change from your purchases and put it into your investments. But the second reason is you’re just at the beginning of your journey. When you start investing, it’s likely that you won’t fully understand the world of investing just yet. It can take some time to understand a lot of the jargon associated with investing along with the various investment options available to you. Going in head first with a large sum of money before fully understanding investing could cause you to potentially lose some of your money as you’ll likely make mistakes. Start off small and increase your knowledge around investing through reading books and articles online as well as learning from others around you who have already started investing.
You can start your investment journey using the Emma app. Open up an account with Nutmeg, Coinbase, eToro, Fidelity International, Hargreaves Lansdown, Kraken or Interactive Investor to begin your journey. You can also link your investment account to Emma to keep track of how your investments are performing.