Learning the most common mistakes when it comes to investing in the stock market will save you time and money.
In this article we break down the TOP 7 common investing mistakes that beginners make and tell you ways to avoid them so that you can succeed in the market.
When you are learning how to invest you should learn the things you should do along with the things you should definitely not do.
Investing is crucial in growing your wealth and we want to help you avoid making common investing mistakes as a beginner.
When you are a novice investor you will make some mistakes while trading stocks.
However, it is easy to avoid common investing mistakes and avoid losing money if you follow basic principles.
What are some common investing mistakes that beginners make?
Since you are a beginner investor you may not know some ways to avoid losing money in the stock market.
When most people think about losing money in the stock market, they think the only investing mistake is buying high and selling low.
However, there are other mistakes that investors make that are in your control that if corrected, can help you avoid losing money on your investment.
Here are 7 common stock market mistakes that a novice trader could make that add to the challenges of investing in stocks.
Not Knowing what these beginner investing mistakes are and understanding them will result in losing money as a consequence of bad investing decisions.
What Should you not do when investing?
Here are 7 tips on avoiding common beginner investing mistakes that will rob you of your investing returns.
7. Not paying attention to Fees
Fees are a killer when it comes to investing. They will rob you of your future. Pay attention to how much you are paying.
Look out for fees on the security you buy and figure out if the fee is worth it. For instance if you buy a mutual fund, you need to check the expense ratio.
Most mutual funds, exchange traded funds, and index funds charge a fee to run the fund.
However, it doesn’t mean it isn’t worth your time to look at the funds that have a low fee and along with a good track record.
The higher the fees the more your investment has to make just to break even.
Plus these fees rack up over time and lower your return.
If you buy a fund and want to see if the trading platform you are using charges fees, you can call your broker or you can find it by yourself.
6. Investing in scams
Avoid Pre IPOs you have the inside scoop on or a hot stock that just can’t lose. You will inevitably lose money on these kinds of investments.
When you take advice from others instead of doing the research on your own, you will lose money.
Taking advice from a friend is a common beginner investing mistake because you are investing your money based on a bad investment decision and not on your research.
You have no idea what your friend’s track record or experience is in the stock market. A lot of people will tell you at what price they bought a stock.
However, a lot less will tell you how much money they lost on that same stock.
5. Buying individual stocks and not funds
We are often asked what is the best investment option for beginners?
Individual stock is a risky investment especially for beginners. Buying individual stocks can be part of your overall strategy when you are a more seasoned investor.
However, if you are a novice trader you should focus on getting more diversification and cut down on the time it takes to monitor your investments.
If you buy exchange traded funds or Index funds, you get instant diversification and only have to monitor a few investments.
You can even purchase a fund that includes the individual stock you were interested in.
Save yourself time and protect yourself more.
4. Become obsessed with checking your portfolio
We know buying can be emotional, especially when you are a beginner investor.
You are excited but also stressed because you don’t know if you made a good or bad investment decision.
If you buy based on facts and understand you can’t time the market you will be less susceptible to obsessing over what is on the screen and in the news.
When you invest you should only invest in things you would like to hold long term.
Holding your investments long term allows you to not focus on what happens day to day in the stock market.
Obsessing doesn’t help you and only makes you go crazy and sell at the wrong time.
This is one of the worst investing mistakes any investor can make.
Having the patience to ride out the ups and downs of a good company that you researched is one of the challenges of investing in the stock market.
3. Buying at the market price
Sorry to be blunt but buying at the market price is for suckers.
Seriously the market moves so much day to day it’s like buying something full price in Macy’s when you know they will have a coupon on that item.
You should at least try to negotiate the best price for your investment before you buy it. The way to do this is by placing limit orders.
With a limit order, you set the price you are willing to pay.
It can’t be too far from the market price if you really want to buy it. However, it can save you a couple of cents.
It may not be much but the savings will add up over time and allow you to keep more money to invest in other options.
If the stock is liquid enough you will most likely get it at the price you want.
2. Not maxing out your job retirement account
If your employer offers a retirement account like a 401k you should take advantage of the tax breaks.
If your company offers an employer match, jump on it. That is free money take it!
Investing in your 401k lowers the taxes you pay right now from your paycheck and allows you to grow that money.
What’s more is that you can benefit from the power of compounding and take advantage of the time you have before reaching retirement to grow that money even faster.
Every day or year that you stay out of the stock market, you are losing money because time is your friend when it comes to investing.
Compound interest on investments will grow your money exponentially faster than you can on your own.
The earlier you start, the better.
Here is the link to see your check amount after the 401k contribution.
Bonus Tip: Focus only on price
How many people have you heard brag about how they got tesla at $200 or Amazon at 300 and now the stocks are worth much more.
Well guess what, unless you are selling those stocks it doesn’t matter where they are now or the price of where you bought them.
Those stocks are not paying a dividend even though they are doing well with earnings.
If you don’t sell these stocks at the higher price all you have is bragging rights which you can’t eat.
As a beginning investor here is my advice for you, buy stocks that put money in your pocket just for holding them. Dividend stocks!
Make a plan on what price you will sell at least some of your stocks so that you can reap some of the benefits.
If you want to know more about dividend investing or even what a dividend is, check out our post on dividend investing. We break down 3 easy strategies for you to follow.
1. Not believing you can do this without a professional
You have to believe you are smart enough. Investing for your future doesn’t have to be complicated.
However, there are people who are paid to make you think it is complicated so they can make money off of your fear of losing money.
All you need to do is find the time and the right resources to learn what you need to learn to be successful.
Start out with the basics and you can be a very successful investor. If you choose to do more complicated trading in the future then you can once you learn more, but it is not necessary.
Our goal is to be that resource that can help cut out the noise and give you actionable advice that you can really use and benefit from.
We are really curious as to which mistake you found the most useful. Put it in the comments below. We can’t wait to hear from you.
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Nadia is a Financial Independence Coach from New York City. She holds a B.A from Columbia University and worked 13+ years in Investment Banking and Financial Services. She is an entrepreneur, investor, and partner at Wealth Twins LLC. She reached Financial Independence in her 30’s and is passionate about showing others how to achieve the same.