5 Common Mistakes New Investors Make

Posted 4 Mar '14

by Lisa Dudson on
Article appears under: Investment Strategy,

It takes time to learn a new skill; however making mistakes when you start investing can have serious consequences so it’s best to avoid them if possible. Some of the common mistakes investors make are:

1. Procrastinating

Thinking through your decisions and doing your homework is prudent but not if procrastination takes over and you never get around to making a decision. I have met many people over the years who were always going to do something and never did. You can cost yourself a big opportunity by spending too much time procrastinating. Do your research, make your decision and take some action.

2. Speculating Instead of Investing

I define speculating as high risk investing where you might take a punt on something. The investment may have high returns but it’s also pretty risky. Investing is where you can more easily quantify the returns. My rule of thumb is never put more than 5-10% of your investment money into speculative investments, and only do that if you have a higher risk profile and have time to recover if you have a loss. New investors have a tendency of putting too much into speculative investments.

3. Using Too Much Leverage

Leverage is a double edged sword in that it can either accelerate your returns or accelerate your losses. Leverage is very common with property investors and is a really important tool to use to increase your returns, however, you do need to be cautious about using too much of it.

4. Not Asking Enough Questions

Research, research, research! One of the most important factors in forming good investment decisions is asking lots of quality questions and spending time checking things out. Having a quick chat with your neighbour or friend over a glass of wine probably doesn’t constitute quality research!

5. Not Investing

In the investment world people often say that time in the market is more important than timing the market. Research strongly shows that the length of time you are in the market is a lot more valuable in terms of the amount your investment returns rather than trying to time the market and invest at the perfect time. The best time to invest is today, providing of course you have done your research.

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