5 common mistakes first time investors make
Investing your money in shares can be an effective way of expanding your wealth. But it is not without its risks. We’ve taken a look at five of the most common mistakes first time investors make when they’re entering the stock market. Read this article and follow this advice so you don’t have to learn the hard way!
1. Jumping in head first
These days it’s pretty easy to get started investing (all you really need is a credit card and an internet connection) but that doesn’t mean it’s any less risky. If you’re putting your money to work on the stock market, as an investor it’s your responsibility to be educated and aware. Read the business section, set up automatic email updates and if possible consult an independent financial adviser.
2. Penny stocks
Penny stocks are generally much cheaper than blue chip stocks, but they are generally far more volatile. So while they can potentially shoot up in value significantly, they’re also far more vulnerable to crashes and even susceptible to market manipulation. First time invested are far better off sticking with reliable, blue chip stocks with a strong track record.
3. Emotional decisions
We’ve all been guilty of making the odd emotional purchase at some point, but investing in the stock market is no time to be overcome by emotion. It’s easy to feel compelled to move your money based on sensational headline, but over the long term, the best returns go to investors who have managed to make well-informed, rational decisions, even in periods of great volatility.
4. Chasing the “next big thing”
Everyone wants to have a major stake in the next Apple or Google, but following market rumours in search of the “next big thing” doesn’t represent solid investment strategy. And even if these sort of investments work out often it’s more a case of you being lucky, rather than being ahead of the curve. Your best bet is to stick with blue chip stocks and stay informed about the market.
5. Going “all in” with one investment
Diversification is the pathway to success when you’re investing in the stock market. You don’t just need multiple shares in multiple companies, but you need to have a portfolio that’s diversified across multiple industries. Spreading your investments out over multiple markets is a great way to hedge yourself against any negative market forces while still reaping benefits from positive ones.
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