What Are the Absolute Biggest Mistakes Young Investors Make?

By
Kayleigh Yerdon

For most of us, learning something new probably means making some mistakes along the way. We learn from experience – and the more we try, the better we get. For this reason, many people agree that it is best to work hard and obtain our valuable learning experiences as early as possible. Then, with the simple mistakes under our belts, we can move forward and make more calculated decisions in the future.

In this sense, investing is just like anything else – it’s very likely that you’ll make mistakes when you first start out. But, don’t let that thought scare you, because it’s also probable that you will get better at making investing decisions as you obtain more experience. With this idea in mind, we asked: what are the top mistakes that young investors make? We also asked: how can those mistakes be avoided by new investors? Aside from the obvious mistake of not investing at all – which can definitely be a big mistake! – we have created a list of the top three biggest investing mistakes among new investors:

1. Speculating

When it comes to investing, speculation is almost never a beneficial technique. A speculator takes on a variety of investments without any real reason for doing so – or, largely because he or she figures that any stock has the chance of going up in value. Speculation often signifies a lack of research or a general lack of understanding about the entire investment process. Of course, putting your money into investments that you do not fully understand is always a risk – in fact, speculation is seen as an equivalent to gambling, or trying out your luck. What is the main issue here? When investors speculate at a young age, they often end up losing a large chunk of their money and becoming more risk-averse than they need to be in future investment decisions. This can affect all of their investments going forward.

So, how do you avoid speculation? This one is pretty simple and cannot be emphasized enough: do your research. Read up about the company you invest in, how it makes profits and even the opinions that others may have about the company’s future. Anything and everything that you can read about a stock before you put your money into it will help you avoid speculation and, in turn, help you discover your true risk preferences for the long run.

2. Procrastinating

The markets move quickly and investors must move quickly, too. As we have mentioned, it is crucial to do your investment research before making any confident investment decision. While this research should be thorough, it is also wise to act as quickly as possible. Similarly, if you get to the end of all of your research and start thinking, “It’s a good idea to buy stock in this company,” you should very highly consider making that investment as quickly as possible. You don’t want to miss out on a good opportunity because you were too nervous to follow your own research! With the constant flow of the markets, the shares you wanted to buy at $20 this week could very well be valued at $30 next week!

You can avoid making this mistake by learning to trust yourself and your research – and trying not to hesitate when you think you have found a good investment decision. The quicker you act, the better your outcomes could be!

3. Not Asking Enough Questions

Many new investors prefer to take a long-term stance on many of their investments because it is simply easier to watch your investments fluctuate instead of actively making decisions about them. However, this often leads young investors into the issue of not asking enough questions. For example, if your shares in a stock decrease suddenly and sharply, it is wise to ask why? While volatility is normal, it is not always the case that a stock’s fluctuations are just a result of usual volatility. Stocks may not always bounce back as quickly as you think they will – and, sometimes, they may not bounce back at all.

So, how can you avoid getting caught in the trap of mistaking a genuine problem for typical volatility? Monitor your portfolio from time to time and take note of any changes that seem abnormal to you. Remember, your research on a stock should not end right when you purchase your shares – it can continue throughout the lifespan of your investment to protect you from making mistakes like this. If something looks fishy, just ask questions!

Of course, your start to investing could be a series of ups and downs. But by keeping these extremely common mistakes in mind and by actively trying to avoid making them, you could stay on top of your new investments and be well on your way to better, more confident investment decisions in no time!

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