11/07/2024

11/07/2024

7 Biggest Investing Pitfalls For Beginners

In the last few years since the pandemic hit a new wave of investors have emerged and are giving the market a shot. A Charles Schwab study in 2021 found that 15% of all U.S. stock market investors got their start in 2020. As the market dipped and stocks became cheaper to buy the pandemic prompted the perfect timing to begin investing. Technology has also encouraged this new wave as new apps mean anyone can set up an account quickly and easily and start investing with little funds.

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Below is a list of common pitfalls investors make when starting out:

1. Constantly watching the market

This is the most common mistake with new investors. With markets constantly moving and changing, trying to follow along will lead to continuous checking and changing of investments, when you’d be better off leaving them out of sight for the long haul. It's good to check in on the portfolio's progress but too frequently is not necessary.

2. Jumping right in

While no degree is necessary to trade successfully, those who possess a good understanding of business and a have a clear idea of the risks and costs associated with trading will have an advantage. Nowadays there is so much free information and tutorials for people to access to self-teach. Some of the trading platforms also have a feature which allows you to trade with fake money so you can understand how the process works better.

3. Following the hype instead of the facts

Chasing the trend is a common mistake investors make. Following the next hot stock without knowing why, apart from the fact other people are, is no solid plan. Always do your homework on a stock or company before putting your money in the market.

4. Investing money you need

A key question you need to ask yourself is, “How much can I afford to lose?”. Many fail to ask themselves this question leading to serious implications for their financial life. The stock market can be volatile and unforgiving, so it’s important to build a separate cash reserve that can be easily accessed so you don’t need to rely on investments when you want to make an emergency purchase.

5. Not giving time for investments to grow

There are rare exceptions of investors who have managed to get rich quickly on short-term trends but buy-and-hold strategies are a safer choice when looking to benefit from long-term growth. The company you invest in should have long-term growth potential. Investing in funds can allow you to easily invest in multiple segments of the market, which can also help spread risk.

6. Holding onto losses

We all get it wrong sometimes; the mistake is holding on. When we can’t let go of bad investments due to the hope they will turn around, this is a sure way of losing money. If a stock is steadily and consistently in the red and on the down, let it go and cut your losses.

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As billionaire investor Peter Lynch once said, “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.”

7. Delaying investing

The last investing pitfall is choosing never to invest at all, this is a costly mistake. To use a bank account to keep all your cash means that the money loses its purchasing power due to the inflation rate rising.

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There are no guarantees when trading, but risk can be rated and managed depending on investment goals. It’s always good to seek financial advice if in doubt or deciding on a plan. 

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Reach out to our team of experts for more information at info@cooneycarey.ie.