Beginner Investment Mistakes
Investing in shares and stocks is a great way to increase your wealth and reward yourself with some great returns for the future. Yet as a beginner investor, it’s easy to make mistakes when you’re first starting out and even the most experienced of investors still make errors from time to time. But if you do your research, there are some initial mistakes you can avoid.
Having No Plan
While it’s exciting to grab your money and throw it all into the market, share investment should never be something you simply jump into. Instead, you need to realise that it’s a long term investment that involves pre-planned strategies and techniques. Failing to formulate a goal and a plan is one of the biggest beginner mistakes when investing. Seek help, write down your goals and create yourself a careful plan that will help you get there.
Investing in One Area Only
Many beginner investors also only invest in one company to begin with. While it might seem like this is a good idea to “play it safe,” putting all your eggs in one basket is a big mistake. Like experienced stock investors, you should spread your portfolio across an array of stocks and companies. Diversifying your portfolio means investing to maximise your potential for returns, while reducing your risk. If you only invest in one business and it goes bust, you will lose everything and won’t have any other investments to back you up.
Investing in Too Many Areas
Similarly, assuming that you’re a stock market genius at the beginning of your investment career is also a big mistake. It’s great to diversify your portfolio, but investing in too many different companies or industries can mean your portfolio becomes too complex to manage. Too many companies can mean you’re facing too much risk, instead of minimising your risk through smart and smaller diversification.
Not Understanding Your Investments
You should always conduct thorough research before you invest in any company or industry. Having a strong understanding of your investments means increasing your chances of success. But many beginner investors also make the mistake of jumping onto an investment trend or simply investing in a company that seems “safe.” You should never assume anything when investing – instead, focus your efforts on careful research and planning and don’t be persuaded by someone else’s point of view.
Not Researching a Broker or Advisor
If you decide to gain assistance from a broker or advisor, make sure that you research them first. Are they licenced? Do they offer sound advice that can be substantiated through public information? Failing to research your broker is a huge mistake and could see you receiving either bad investment advice, being swayed by ‘hot tips’ or being scammed. Remember, you should never solely rely on a broker when managing your investments; conduct your own research and stay abreast of your share movements.
Putting Yourself in Debt
Borrowing to invest and putting yourself in debt can be very high risk and unless you are earning a substantially high income, with the ability to comfortably cover your losses, borrowing to invest is generally something a beginner investor should stay away from. Instead, focus on saving your money for your investment or investing small to begin with and using techniques like dollar cost averaging, for example. If you don’t make enough money and you borrow to invest, you could end up losing all of your investment, entering into financial hardship and ending up having to deal with a debt collection agency.
Not Taking Fees Into Account
Remember, share investing doesn’t always happen for “free.” It’s important to consider the fees involved when you start to invest, particularly if you’re using a broker or advisor. While you may benefit from high returns, big fees can mean your profits are substantially lowered – which can skew your numbers and change your plans dramatically. Assess your strategies when entering into the stock market and make sure you get a clear understanding of any fees involves and how this will impact on your gains.