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The 7 Most Common Mistakes New Investors Make

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Nowadays, more and more investment opportunities are popping up for people with a wide variety of experience levels. You don’t need to have significant assets or experience to dip your toe into investing anymore. It’s become much more accessible, there are lots of free educational resources online, and financial advisors are considering how to help more people navigate investing for the first time.

That’s great news for new investors thinking about their long-term financial goals and futures.

Whether you’re researching the stock market, considering different index funds, thinking about buying bitcoin, researching new cryptoassets, or wanting to invest in real estate, there’s a lot for new investors to consider and learn.

The best way to learn is by doing, but there are a number of common mistakes new investors make when they’re just getting started and don’t have much experience. We’ve compiled a list of some of the biggest oversights we notice, so consider the following and avoid these common missteps.

We’re confident that if you avoid these missteps and develop an intelligent financial plan, you’ll be investing like a pro and seeing robust returns in no time.

  1. Forgetting about diversification

A diversified financial portfolio is one of the most important assets in an investor’s toolbox to work towards their financial goals with minimal risk. Diversification is important because it protects you from fluctuations and volatility in different markets as much as possible, because you won’t have all your eggs in one basket, so to speak. 

Unfortunately, one of the biggest mistakes that new investors make is investing all their money into one industry or category. This is often due to a lack of knowledge on how to make diverse investments, or simply not being familiar with their benefits.

There are many ways to diversify your investments. Basically, you’ll need to choose a variety of investment types for your resources. Some of your options include:

  • Stocks
  • Bonds
  • Real estate
  • Mutual funds & ETFs
  • Cryptocurrencies
  • Commodities

In order to have a truly diversified portfolio, you’ll also want to invest in different industries and countries within those same categories.

If you’re not sure how to go about diversifying your portfolio when you’re just getting started, you can always consult a financial advisor. There are also new investment options that have diversification “built in,” like robo-advisors and index funds.

  1. Not doing enough research

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Getting started on investments can certainly be intimidating. In fact, financial illiteracy is a pretty big problem. A 2020 report showed that 50% of Americans didn’t know whether buying a single stock or investing in a mutual fund would likely bring them better returns in the long run. It’s no surprise that many people don’t know where to begin when working towards their financial goals.

There are many tools out there nowadays, like Robinhood and Betterment, that can help you invest with little need for your own personal research. Nevertheless, it’s still wise to do your own research before you start investing your money all over the place.

Especially in the case of stocks, you should have a good idea of the company’s performance, debt, background, and other factors before putting your faith in them. Even Warren Buffett thinks so.

  1. Making quick, emotionally-driven decisions

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No matter what kind of investment you make, it’s always going to be subject to some kind of risk. There are always going to be fluctuations in the market, and you’ll see your returns bounce up and down accordingly.

No matter whether you see the value of your investment plummet or skyrocket, it’s important to avoid making knee-jerk, emotionally-driven decisions. Especially for new investors, it’s sometimes difficult to resist the urge of putting all your assets in one pot, or withdrawing everything and calling it a day.

The truth is, you have to play the long game to reach your long-term financial goals. Studies show that long-term investments are much more profitable than short-term investments overall. Tellingly, a 2020 Shroder’s report surveyed 148 years of data on the American stock market index. They found that if you invested for a month, you would lose money approximately 40% of the time. On the other hand, if you invested for 20 years, the probability of losing any money at all was negligible.

As a new investor, these insights are important to keep in mind when you see flashy fluctuations in the market.

  1. Misplacing loyalty

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This is especially the case when beginning to invest in stocks. People often invest in stocks because they believe in a company, think that they will be successful, or saw that they were booming in the market at a point in time.

While there’s nothing wrong with this, it’s important to avoid being overly loyal to a company (or any type of investment for that matter) if it’s not serving your interests in the long-term. Be sure to keep a practical perspective when deciding where to invest your money, no matter where that may be.

  1. Misunderstanding the nature of different types of investments

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There are many different kinds of investments, and they all behave differently. For example, cryptocurrency is considered a fairly volatile, yet high reward investment. On the other hand, index funds are relatively reliable, but need a long time to yield significant returns.

Whether you’re browsing different index funds or looking to buy USDT on Moonpay, it’s important to understand the nature of your investment before you dive in. That way, you’ll avoid any unpleasant surprises and feel prepared and confident about your financial plan.

No investment is 100% risk free, but the following investments are considered relatively low-risk:

  • Mutual funds and segregated funds
  • Bonds
  • Index funds
  • High yield savings accounts
  • Fixed-rate annuities

On the other hand, these investment opportunities are seen as higher risk:

  • Crowdfunding
  • Cryptocurrencies
  • Hedgefunds
  • Venture capital
  • Stocks
  1. Taking advice from unreliable sources

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Sometimes it feels like every person on the internet is claiming that they’ve unearthed the secret to investing and making big money from the comfort of their own home. Whether you’re listening to financial segments on the news, YouTubers, or savvy tech influencers, it’s important to take what they say with a grain of salt.

In all likelihood, these financial pundits’ motivations can’t be relied on. More often than not, they are trying to earn money and influence for themselves, rather than help you invest intelligently. There’s no problem using them as resources to get yourself informed and inspired, but avoid putting what they recommend into practice word for word.

The best bet to ensure that you reach your financial goals is deciding on a long-term investing strategy and sticking to it. If you’re just getting started, you can consult a financial advisor to help you put one in place, or you can develop your own as you do your own research over time.

  1. Investing for the sake of investing

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Investing has been an increasingly talked about topic as of late. The amount of technology, resources, and accessible opportunities out there has led many people who’ve never considered investing before to give it some serious thought. Indeed, a Finder.com report found that 20.40% of Brits considered investing for the first time in 2020.

It’s great news that people are becoming increasingly financially literate and are taking steps to improve their financial futures. However, it’s important to avoid investing just for the sake of investing, or investing just because you think you should. Before putting a chunk of your savings into an investment, think about why you’re investing. The best investment strategies come with tangible goals attached to them.

Some common motivations driving investments include:

  • Retirement savings 
  • Real estate purchases
  • Other significant purchases, like cars or home renovations
  • Life events, like weddings, school fees or new family members
  • General life savings or “rainy day funds”
  • Funds for new businesses or business ventures

If you know why you’re investing, it’ll help you plan your strategy more accurately and account for different factors like time horizon, risk, and the like.

Getting started investing is exciting…

There’s lots to learn, many opportunities to generate great returns, and it always feels good to invest and work towards a secure financial future. However, it can also be stressful when you’re new to the game and don’t have much investing experience.

There are lots of common mistakes that new investors make that are easily avoided, and we’ve outlined the top ones we see in this article. Be sure to refer back to it to ensure that you don’t make any of these easily avoidable mistakes.

As you do your own research, get to know the market, consult a financial advisor, and develop your own investment strategy, you’ll soon gain confidence and feel empowered working towards your financial future. Happy investing.

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