The top 6 mistakes new investors make & how to avoid them

When investing for the first time, people often need to gain experience before realizing if their choices were sound. However, that would cost you time & money that you could have otherwise spent differently. Here are the top 6 mistakes new investors make and how to avoid them:

Top 6 mistakes new investors make frequently

1. Not having a well-defined investment plan or strategy. It’s important to have clear goals for your investments and a plan for how to achieve them.
2. Being too conservative or too aggressive. Both extremes can be problematic. Being too conservative may result in missing out on potential returns while being too aggressive can lead to taking on too much risk.
3. Chasing hot investment opportunities or trying to time the market. This can lead to buying high and selling low, which is a recipe for poor returns.
4. Failing to diversify. Investing all your money in a single stock or asset class can be risky. Diversifying your investments across different asset classes and types of securities can help manage risk.
5. Not keeping an eye on fees and expenses. Fees and expenses can eat into your returns, so it’s important to be aware of them and invest in low-cost options whenever possible.
6. Reacting to short-term market fluctuations. The market goes through ups and downs over time, and it can be tempting to panic when it’s down, and get excited when it’s up. But it’s important to keep in mind that short-term market fluctuations are normal, and reacting to them emotionally can lead to poor investment decisions.

*eToro is a multi-asset investment platform. The value of your investments may go up or down. Your
capital is at risk.

All of these mistakes can be avoided by doing your research and planning your investments carefully before making any decisions.

1. No thought-out plan or strategy to invest

Not having a well-defined investment plan or strategy: To avoid this mistake, it’s important to have clear goals for your investments and a plan for how to achieve them. This includes setting specific financial goals, such as saving for retirement or a down payment on a home, determining your risk tolerance, and identifying the types of investments that align with your goals and risk tolerance. Once you have a clear understanding of your goals and risk tolerance, you can develop a strategy for how to achieve them. This may include a mix of different types of investments, such as stocks, bonds, and real estate, and a plan for how much to allocate to each type.

2. Finding your risk tolerance

Being too conservative or too aggressive: The key to avoiding this mistake is to find a balance between risk and reward. Being too conservative may result in missing out on potential returns while being too aggressive can lead to taking on too much risk. One way to determine the right balance is to assess your risk tolerance and then develop a diversified investment portfolio that aligns with that tolerance. This usually means a mix of different types of investments that offer different levels of risk and return.

3. Trying to time investments

Chasing hot investment opportunities or trying to time the market: One way to avoid this mistake is to adopt a long-term perspective when investing. Trying to time the market or chase hot investment opportunities is a difficult and often unproductive strategy. Instead, focus on building a diversified portfolio of investments that align with your goals and risk tolerance, and then hold onto them for the long term. It’s important to remember that the stock market is volatile over the short-term, but tends to be more stable over the long term.

*eToro is a multi-asset investment platform. The value of your investments may go up or down. Your
capital is at risk.

4. Going all in

Failing to diversify: To avoid this mistake, it’s important to diversify your investments across different asset classes and types of securities. This means allocating your money to different types of investments, such as stocks, bonds, and real estate, in order to spread out risk. By diversifying, you can help manage risk and smooth out returns over time.

5. No cost consciousness

Not keeping an eye on fees and expenses: To avoid this mistake, it’s important to be aware of fees and expenses when investing. This means paying attention to things like management fees, transaction costs, and sales charges when you buy or sell an investment. Low-cost index funds and ETFs are good options when possible to keep expenses low. Additionally, it’s a good idea to compare the fees of different investments and choose those that have lower fees and expenses.

6. Tempted market changes

Reacting to short-term market fluctuations: To avoid this mistake, it’s important to keep in mind that short-term market fluctuations are normal, and not to react to them emotionally. Instead of trying to time the market, adopt a long-term perspective and stick to your investment plan regardless of short-term market movements. Additionally, you should resist the urge to try to predict what the market is going to do next and instead, focus on things you can control, such as the diversification and alignment of your portfolio with your goals and risk tolerance.

Preparation is half the effort

Now that you have read this article, you are aware of the top 6 mistakes new investors make and can avoid them. One way to get started is to check out our glossary for more terms and concepts used in the stock market. If you are further along in your investing journey, perhaps a broker review can assist you in finding the right fit. Regardless, good luck to you, and contact us if you have any questions.

*eToro is a multi-asset investment platform. The value of your investments may go up or down. Your
capital is at risk.