Investing can feel daunting, but it doesn’t have to be. While there is no guaranteed path to riches. There are steps you can take to avoid common investing mistakes to significantly improve your chances of success. This post will show you some of the common investing mistakes, and show you how to avoid them. Everyone makes mistakes along their investing journey, especially as a beginner. But with the help of this post, I will help you avoid some of the common pitfalls many investors make.
We will cover everything from making emotional decisions to not making the most of your portfolio.
Common Investing Mistakes:
Letting Emotions Drive Investing Decisions
Also described as emotional investing, letting your emotions drive your investing decisions is almost always a bad decision. Fear and greed are powerful motivators, often being reflected in the stock market.
A high degree of fear can result in stocks being sold off at cheap prices due to drops in price. Where greed can cause overvaluations, causing people not to take profit at opportune moments. Always hoping to make a little bit more.
Fear is often linked to market drops where greed is often linked to bull markets and price jumps. But fortunately for the everyday investor, there is an easy way to avoid falling prey to fear and greed.
The Fix:
Luckily for us the fix to emotional investing is very easy to implement. While many people will be tempted to check their portfolio often. It can often be better to ignore it for long periods.
Time can often be the best tool to grow your portfolio. Checking it frequently and seeing a short term loss can often scare people into selling their asset. When given the time to grow this loss could turn into a powerful gain.
The best way to avoid this mistake is by setting regular intervals to review your portfolio such as quarterly or annually. It can be positive to develop a long term investment plan at the start of your investing journey. Sticking to it religiously to prevent you from making emotional decisions.
Not Diversifying Your Portfolio
As we are taught as children, putting all your eggs in one basket is always a recipe for disaster. If you put all of your capital into one investment, and that investment under performs. You could lose a significant portion of your capital.
Many successful investors recommend not holding more than 5% of your capital in any one asset. No more than 20% in any one industry. This is a rule I follow closely. Protecting yourself from market and industry fluctuations is vital when making long term investments.
The Fix:
The fix for lack of diversity is to spread your capital across various assets. Choose a variety of different industries to invest into. Make sure to do your research on each one before investing to provide confidence in long term investments.
A great way to improve the diversity in stock market investing is to invest in index funds. Index funds will spread your capital into a variety of assets for you. Often being managed for very low fees, providing a hassle free return.
While I mainly focus on stock market investing. It is a good idea to spread your capital across various asset classes. These can include stocks, bonds, real estate, crypto, other businesses. Anything with the potential to make you money.
I’ve gone more into depth on how diversity can benefit your portfolio here if you are interested in reading further.
Trying to Time the Market
While people can often time the market successfully, making profit. It is extremely difficult to do, many investors try and fail to time the market, losing money in the process. To do effectively you require a wealth of experience and time to analyze market data. A strategy that simply is not plausible for the average investor.
Attempting to time the market can often have an undesired effect. Buying high and selling low. The opposite of what investors aim to do. While timing the market is notoriously difficult, luckily the fix is even simpler.
The Fix:
Time in the market is always superior to timing the market. The best way to combat timing the market is to focus on long term investment rather than short term gains. Making profit in the long term is always easier and more repeatable than short term gains.
Choosing strong long term investments that grow consistently is key to building a strong portfolio. History has shown the best investors are those who give their investments the most time to grow. Leaving them to grow without interference can often be the best investment strategy.
This paired with cost averaging to invest little and often, ensures you get the best possible price for your shares without the hassle of timing the market. If you’re interested about cost averaging and it’s benefits. You can read more about it here.
Neglecting Financial Goals
Setting specific and clear financial goals is often the best thing you can do when starting your investment career. Having a clear end point in mind when starting your journey will make the steps required to get there clear. You need to know why you are investing. Are you investing for retirement? for a down payment on a house? college savings?
Each goal requires tweaks to your strategy, often forcing you down a slightly different path. You need to know what you are planning to achieve in order to make informed decisions about your investments.
The Fix:
Set clear financial goals at the start of your investment career. Write it down somewhere so you don’t forget your goal. At the same time write an investment plan that aligns with these goals and your lifestyle. While it can be beneficial to tweak the investment plan with experience. It can be helpful to keep your goal in mind to keep you motivated.
When writing this goal it is worth considering your time horizon, risk tolerance and investment timeline. Set yourself specific goals to meet along the way to ensure you are remaining on track. It is also worth remembering what you are investing for to keep you focused.
Not Reviewing Your Investment Strategy
Reviewing your investment strategy over time can be a good way to keep it relevant and profitable. Over time market conditions can change. What may have been a strong market 20 years ago may not carry the same benefits now. The market is like a living thing, it grows, changes, evolves.
If you leave reviewing your investment strategy too long it can leave it to become outdated. Leaving you unprepared if the market conditions change or events affect the stock market.
The Fix:
Regularly review your investment plan. Reviewing it at least annually is usually a good time frame. This gives you an opportunity to make adjustments as required. Considering changes in your income, expenses, risk tolerance and financial goals.
I can be better to review your strategy infrequently, leaving it to 4 times a year at most. Preventing you from over analysing your investments and interfering too much with your portfolio.
Procrastinating
Many people leave getting started with investing. In a market where time is the most important tool, too many people leave it too late to begin. Time gives your investments time to compound. Taking the stress and pressure out of your investments. Giving you the opportunity to allow them to grow over time.
The biggest mistake you can make is not starting as soon as possible. Your future self will thank you for starting when you can. The best thing you can do is begin!
The Fix:
Don’t wait for “the perfect” time to invest. There isn’t one. Start small, learn along your journey. Do your research along the way. You will make mistakes, but knowledge and investing in yourself is the most powerful investment you can make. Be patient with yourself and take small steps along the way. Even the smallest steps can lead to the biggest results. Trust me, get started today and 20 years from now you will be so grateful that you did.
Effortless Investing 
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