11 Mistakes New Investor Mistakes

I’m giving you 11 mistakes new investors make, so you can catch yourself if you’re making these and instead establish an investing plan for wealth creation. As you listen let me know in the comments which you’re guilty of! and no judgment as I have made most of these mistakes myself when I first started […]

I’m giving you 11 mistakes new investors make, so you can catch yourself if you’re making these and instead establish an investing plan for wealth creation. As you listen let me know in the comments which you’re guilty of! and no judgment as I have made most of these mistakes myself when I first started investing.

Mistake #1. Obsessively researching the best stocks. Finding the best investment just doesn’t work. No one knows what will do exceptionally well. This doesn’t stop people from trying to make predictions and pull you into their logic. Some will get their predictions right and others won’t. Another issue this creates is delaying investing because you wait to find the perfect thing or you get overwhelmed with all the options and make no choice at all. The fix: keep it simple and use Warren Buffet’s guidance. Invest in companies you understand and use or just use an index like the S&P 500 to invest.

  1. Buying too many stocks. You’ve heard that you shouldn’t put all your eggs in one basket, but if you have too many baskets then it is difficult to manage everything. You also limit your opportunity for concentrated growth. For example, if you have 30 stocks and a few do really well you won’t benefit much if you only had a small amount invested. This also makes it a nightmare to review your investments. The fix: just buy an index fund if you want a ton of stocks. It’s already done for you and most professional money managers that put together their own baskets of stocks don’t outperform the index, so it would seem less likely that you could by choosing your own investments. If you do want individual stocks, keep it simple and invest in what you already use all the time. Watch this for help finding a few stocks. The same fix as mistake one actually.
  2. Selling when their stocks go down. People feel more pain from loss in their portfolio than they experience joy from gains. This pain causes people to sell out on something they have already determined was a good investment just because it dropped in price. So many things happen throughout the year that affects the price of a stock that has nothing to do with its value. Chipotle for example had an e coli outbreak that really hurt the stock in the short term, but I’m guessing people that sold the stock now regret it. This is an example of something that could shut a business down and would be worth following closely to see how the company was responding, but it’s also something that can happen and be resolved as it was in their case. The fix: keep the investment you researched and found to be a good investment for at least a year before you reassess.
  1. Investing too conservatively. The fear of losing money is really strong when you start investing. You work hard for your money, so obviously the idea of losing it sucks. This causes people to invest too conservatively when they are young with plenty of time for their money to work for them and then later realize they should have been more aggressive. The fix: Remember when you’re a long way from needing the money you are investing, you have both time and income on your side. This allows you to recover from large market losses AND invest money at low price points if you’re investing on a regular basis.
  2. Investing too risky. New investors tend to be at opposite ends of the risk spectrum. Often they will say they don’t want to lose money but then will invest money they “don’t need” into something risky, lose money and stop investing altogether. There is a difference between aggressive or risky and speculative investing. Speculative investing is beyond “risky” and more like gambling. Things like penny stocks fall into this category. The fix: if you want to be aggressive with your investments, stick to stocks from companies that have good historical performance. Avoid those that have fallen a ton in value because that is usually a red flag that the company isn’t doing well.
  3. Not investing enough: I see people with lots of cash in their checking or savings account and just investing a small amount because they are fearful of the market. The money in your bank isn’t even keeping up with inflation, so you are losing purchasing power and time for your money to be compounding. In the early part of your investing life the majority of your account’s growth will come from your deposits. it’s not until you’ve been investing for years that you’ll start seeing a larger portion of your growth coming from market returns. The fix: get a good idea of your monthly surplus and start investing that once you have your emergency fund saved and high-interest debt paid off. If you have a large lump sum that you don’t plan on using for years, then you can start putting that into the market in set amounts over time.
  1. Investing while you have high-interest debt: paying a high level of interest, say over 4-5%, and definitely the 20%+ rates that credit card companies charge is a guaranteed way of losing money for the long term. Once you get that debt paid off, you can accelerate your investing because you can take what you were paying towards debt and then invest that. If you invest while you have that high-interest debt, then the gains you see are likely barely if anything, keeping up with the money that you’re paying in interest. The fix: pay down your debt with interest rates over 4% or so.
  2. Not following a strategy: investing when you feel like it with random amounts into random investments. This leads to emotional investing which causes a lot of loss and a bad investing experience along the way. It’s also hard to plan for your short and long term goals. You may invest too much and end up selling because you need money for something or you may not invest enough because you weren’t sure of your overall plan. The fix: create a plan and book a session with me through the link below if you need help.
  3. Jumping into stocks after they’ve had a large increase. What happened with Gamestop is a perfect example of this. FOMO is real when it comes to investing. No one wants to miss out on “the next Amazon”. People get the idea of buying something at a low price and seeing massive gains. Everyone wants that, but in reality, people end up doing the opposite by buying at high price points and selling when it starts going down. Most of the time when we hear about a massive run-up in a stock, it’s already too late to get in on the action. The huge profits have been made. When people buy in after hearing about something that’s going up there are other people that are taking their profits and getting out. This causes the stock to start falling rapidly. The fix: create an investment plan and tune out the noise.
  4. Using several apps. Acorn and Robinhood are the ones I hear of often and there are pros and cons of each, but overall this goes hand in hand with not having a strategy. Rounding up and investing your change isn’t a great plan because you may end up investing too much of your income that you need to cover bills. It’s only good if you have the inability to stick to a budget and stop spending when you run out of money. You would be better off working on your budgeting skills because you’re likely to end up selling your investments when you’re short on your bills for the month if you didn’t plan well. You can end up needing the money when your investments have gone down. That means you will get less out than you put in. Another problem it causes is having multiple accounts all over the place and not really understanding how you are invested overall. The fix: keep your investments in one place and invest a planned amount regularly.
  5. Having unrealistic expectations for growth in the short term. People hear of investing as a way to create passive income. This is a benefit of investing, but you don’t feel that until you’ve been investing for years and have invested enough for that money to produce a noticeable amount. For example, if you invest $10k and that returns 10%/year that will = be $1k per year or $83 bucks a month. That is nice, but if you invest $10k and then deposit $200 per month for 10 years and then use it as a way to supplement your income, you will have $6,800/year or around $566 per month. The fix: Remember that investing is a long-term game. You may get lucky from time to time in the short term, but you’ll see the best returns when you’ve invested consistently over time.

That’s all for this week. I’ve recently crossed the 1k subscriber mark so am super thankful for those of you that are following along and learning more with me every week. See you next week! bye!

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