Common Mistakes First Time Investors Make

As investing rises in popularity each day, we see more and more rookie investors being left bitter. They just can’t get it right even if they’re investing in that one asset everyone is going crazy over. This is especially frustrating when they know people are making money, but they seem to be unable.

The thing is that for someone who doesn’t know what they’re doing, figuring out what they’re doing wrong can be just as hard as fixing those mistakes. This puts them in a loop that takes effort to get out of. Here are some common mistakes first-time investors are guilty of that we want to save you from making.

Photo provided by the courtesy of Anna Nekrashevich

Jumping On Bandwagons

Following trends in investing is the fastest way to succeed if you intend to set yourself up for certain failure.

We have this misconception that replicating someone more successful than us, whether they be a renowned businessman or simply the owner of a verified account on social media, will bring us closer to success as well. This is untrue, but many people fall victim to this subconscious trap and get into investing because they saw celebrities preaching about one specific stock or saw a guy with a checkmark claim he made thousands of dollars in one night and turned his life around.

This hype around investing causes many newbie investors to blindly trust the popular investors they idolize, forgetting those people have the experience that they don’t; and more importantly, forgetting that those people can make mistakes. Experience doesn’t shield us from the occasional faulty guess. If you put your chance of success entirely on someone else’s back, when they fail, you’re bound to fail with them. But hey, at least you won’t be lonely on the losers’ train.

The biggest issue with moving along with trends is their nature. Trends die fast. An experienced investor will be able to foresee when a stock will go out of favor and pull out of it in time and make a profit. However, a new investor won’t be able to see this coming and is likely to invest at the wrong time. The cost of this can be detrimental.

Choosing An Exchange Wrong

There are a number of factors that go into choosing an exchange. Some exchanges are not available in every country, some are hard to use for a beginner, some are not as secure as others, not to mention that they also have different fee rates.

Most newbie investors don’t realize what goes into choosing the correct exchange and going with whichever has the most users or whichever they hear about more often. Instead, it’s important to choose an exchange after carefully considering your options by weighing fee rates, examining the UI, and looking into the effectiveness of customer support. Don’t forget to consider what kind of assets you’re looking to invest in as well!

Moving Without a Plan

Not having a clear idea of how much you’re going to invest in total, how much capital gain you plan on making, how much you can lose safely, and what strategy you’re going to use won’t do you any good. You might get lucky the first time and leave the market with profit, but you’re guaranteed to fail soon enough.

When you don’t have a plan you can easily lose focus, make rash decisions, and fail to cut losses safely. Without a predetermined folding point you’re likely to crash hard. Think about it, would you venture out into the wilderness without a map?

One reason you might be avoiding planning could be that you don’t know enough about investing to come up with a plan, in which case, you shouldn’t be investing yet in the first place. Being adequately researched is what’s going to cover for your lack of experience for a while. So don’t slack on it!

Hesitating Too Much

It’s normal to be unsure of yourself when you first get into unknown territory. There’s really no way to avoid this feeling but you can avoid its side effects. To do that, you must first know what they are.

A hesitant investor will do the smart move of only investing in things they understand but at the same time, they will do the silly move of not getting to understand new ones as time goes on. They will stay in their comfort zone and only work with one or a couple assets. However, you shouldn’t hesitate to diversify your portfolio, the sooner you branch out the better. Remember, staying loyal to one asset means that your entire investments do as well if it plummets.

Waiting too long to make your investments and cut losses are other ways that hesitating too much could harm you. When you see a safe opportunity to make more profit, or a chance to make an exit when things aren’t looking good, trust yourself to use them.

Not Hesitating Enough

Markets waver and they waver often. Recognizing when a drop is temporary is key to making large profits. An experienced investor can do this and stay in the market to achieve long-term success, while a new investor might freak out and pull out of the market immediately. Taking the time to think and hesitate a little can help you gain more.

This isn’t only relevant in the situation of a drop. Impatient investors can also sell before assets peak, limiting their profit.

You should also always be hesitant when considering new assets. An investor that goes and acquires new assets on a whim is likely to find that a good number of them have gone out of favor or don’t have any significant value whatsoever. Taking the time and care to research new possible assets is beyond important. It’s essential.

Using Money Wrong

Maybe it’s out of eagerness, maybe they just don’t know any better; but new investors seem to invest with money that they shouldn’t, and a little too often.

If you’ve been spending time in investor circles you must’ve surely heard this little horror story. Guy invests, makes a profit, gets excited, convinces relatives or friends to lend him money so he can double it with his genius, he fails and loses the money and now he’s in debt. Don’t be this guy ever. Not even down the road when you’ve accumulated experience.

After you’ve spent some time in the investment world you will come across a little something called leverage. Leverage is buying an asset with the help of a lender, who then receives interest from the profit you make from that asset. It allows you to multiply your profits with the risk of multiplying your losses, meaning you would go under a large amount of debt if the asset fails. To a rookie’s ears, leverage might sound fancy and like just another investment strategy but a new investor should stay away from it at all costs.

The takeaway here is, always invest with your own money to avoid not only crippling debt but losing people’s trust in you as well.

Another common way new investors use their money wrong is when they don’t separate their investing money from the rest of their savings. The easiest way to go about this is to simply set up an emergency fund that you won’t use to invest, although that is something most adults should already have.