4 beginner investor mistakes to avoid4 beginner investor mistakes to avoid

Let’s look at some of the more common pitfalls that new investors fall into. If you can avoid these, you’ll be well on your way to making investing a positive habit that you stick to for the long term.

Mistake #1: selling too much, too soon 

A common mistake first-time investors make is to take all their returns at once when things start to increase in value. 

This makes sense on the face of things—if you make a solid return, quickly, then why wouldn’t you turn this into cash by selling up? But if you do that, you may be missing out on future gains, if your investment continues to rise in value. 

(That’s a big “if”—it could stay the same, or fall). 

But if you’re comfortable with the risk you’re taking and the fundamentals of the investment you’ve bought into, you may want to leave some of your money invested. 

Of course, it’s important to stress that you should only do this if you’re comfortable. It’s not necessarily a mistake to sell everything—but it might be a mistake to sell everything without thinking about other approaches. 

Mistake #2: not selling fast enough

We talk a lot about investing for the long term. But here’s the reality—it’s not always the best option, particularly when you’re investing in individual companies. 

If an investment is dropping in value because the company you’ve invested in isn’t doing very well, then it sometimes makes more sense to take your losses and cash out than it does to hang on. If you’re going to do this, then it makes more sense to do so quickly, rather than wait for your losses to become even greater.

The risk of doing this is that you sell, things turn around, and you don’t get the upside. So you have to ask yourself if you think an investment is in a temporary dip or a downward spiral. If it’s the latter, selling now makes more sense than selling later. 

Mistake #3: waiting for the bargain that never comes

If you look at the ups and downs of the share market, it’s easy to see (in retrospect) where the best buying opportunities were. Wouldn’t it be great to invest when shares are $1, and immediately have them shoot up in value to $3, $4 or more?

The problem with this is that bargains are very obvious in hindsight, and very hard to find ahead of time—unless you have a crystal ball. So you can end up waiting for the price of your investment to fall just a little more every day before you take the plunge. Next thing you know, it goes up, and you’ve missed out again!

How to avoid this mistake

Rather than trying to wait for bargains and time the market, one strategy is to invest the same amount on a regular basis—also known as dollar-cost averaging. This means that sometimes you buy when prices are high, and sometimes you buy when prices are low—over time, your purchase price of each investment averages out, and you don’t have to worry about whether you got a bargain or not.

Mistake #4: thinking you need to be rich

Some would-be investors avoid investing because they think you need to invest a lot of money. If you don’t have a lot of money, why bother? But remember that you can invest a little bit for the short or long term, and still have a chance at making some returns.  

For example, you don’t need heaps of money to generate compound returns, you just need heaps of time. So, the sooner you invest, the more time you're giving yourself to earn potential compound returns.

How to avoid this mistake

Remember that even a small amount invested is more than $0 invested! Choose an affordable amount to invest regularly, stick to it, and then reassess how you're tracking down the line.