10 Common Investing Mistakes to Avoid

10 Common Investing Mistakes to Avoid

Reading time: 5 Minutes

Investing can feel like navigating a treacherous forest, where the paths to success are as elusive as a straightforward instruction manual for assembling furniture. While the world has not invented a time machine app (yet) that allows you to undo those ‘oops’ moments in investing, this article may help you avoid common blunders. 

1. Putting All Your Eggs in One Basket

Ever heard the saying, ‘Don't put all your eggs in one basket’? Well, in the world of investing, it's the golden rule. Diversifying your investment portfolio is like making sure you have more than one type of snack at a party – it keeps things interesting, and if one goes bad, you've got backups. Spreading your investments across different asset classes (stocks, bonds and real estate, for example) can help manage risk and reduce the impact of poor performance from a single investment.

• Tip: Start with a mix of stocks and bonds, then consider adding other assets like real estate or commodities based on your risk tolerance.

2. Chasing After the Next Big Thing

In the era of social media, Fear of Missing Out (FOMO) isn't just about parties. It's infiltrated the investing world too. Jumping on the bandwagon of the latest stock craze because everyone else is doing it can be risky and is rarely a good idea and is often followed by regret. Remember, for every overnight success story, there are countless unseen failures.

• Tip: Take a step back and conduct thorough research before making investment decisions. IGNORE THE NOISE. Remember, it's okay to miss out on some opportunities. Not all will align with your investment plan.

3. Ignoring Your Risk Tolerance

Your risk tolerance is basically how much market turbulence you can handle without losing sleep. If the thought of your investments dropping by 5% makes you queasy, you might have a low-risk tolerance. Ignoring this and investing in high-risk stocks anyway is like going bungee jumping when you're scared of heights – not a pleasant experience.

• Tip: Assess your risk tolerance through online quizzes or by talking to a financial advisor, and invest accordingly.

4. Forgetting About Fees

Fees are like those sneaky calories in a ‘healthy’ smoothie – they add up. Whether it's brokerage fees, fund management fees, or transaction costs, they can eat into your returns over time. Always read the fine print and consider the impact of fees on your investment returns. It is recommended to invest only with reputable brokers that offer a clear and competitive pricing structure.

5. Overlooking the Importance of Compound Interest

Compound interest, where you earn interest on both your initial investment and the accumulated interest from previous periods, can turn modest savings into significant sums over time. However, its true power is often underestimated or overlooked by investors.

Think of compound interest as a snowball rolling down a snowy hill. At first, it's just a small ball, but as it rolls, it picks up more snow, growing exponentially in size. The longer it rolls (the more time your investment has to grow), the bigger it becomes. Starting early and allowing your investments to grow over time is crucial to maximising this effect.

• Example: If you invest $1,000 with an annual return of 7%, in 30 years, you'll have over $7,600 thanks to compound interest.

6. Trying to Time the Market

Attempting to time the market is highly speculative and often wrong. The market is influenced by countless variables, making it nearly impossible to predict its rises and falls on a trade-by-trade basis.

• Tip: Focus on long-term investment strategies and resist the urge to react to short-term market volatility. Remember, staying invested and diversified is often more effective than trying to outguess the market.

7. Falling for Hot Tips

Investing based on hot tips from friends or the internet is like following a treasure map you found in a cereal box. Sure, there's a chance it might lead to something, but more likely, you're just going on a wild goose chase.

• Tip: Do your own research or consult with a professional before making investment decisions.

8. Letting Emotions Drive Your Decisions

Investing can be an emotional roller coaster, with exhilarating highs and stomach-churning lows. However, making decisions based on emotions rather than logic can derail your investment strategy.

• Remember: Panic selling during a market dip or greedily chasing high returns can harm your investment goals.

9. Neglecting to Review and Adjust Your Portfolio

Your investment portfolio is not a crockpot recipe. You can't just set it and forget it. Regular reviews and adjustments are necessary to ensure they align with your changing financial goals, market conditions, and risk tolerance.

• Tip: Aim to review your portfolio at least once a year or after major life changes.

10. Not Starting Sooner

One of the biggest mistakes you can make is not starting your investment journey sooner. Thanks to compound interest, even small amounts invested early can grow significantly over time.

• Motivation: Think of investing like planting a tree. The best time was 20 years ago. The second-best time is now.

Wrapping It Up

In conclusion, while the world can't offer you a time machine to fix past investment blunders, steering clear of these common mistakes is the next best thing. Remember, in the world of investing, wisdom often comes from learning what not to do.