5 Investing Mistakes That New Investors Make

With a little knowledge, or some help from a financial advisor, many of the investment mistakes new investors make can be largely avoided.

But most people aren’t aware of the psychological barriers inhibiting their ability to invest successfully in the first place until it’s too late.

Here are the five investing mistakes that most new investors make and how to avoid them.

Relying on Investment Advice from Friends & Family

Your friends and family may have the very best of intentions, but that doesn’t make them qualified to give you advice for investing your wealth.

What’s worse is because we trust our friends and family so much, we are more susceptible to blindly following what they have to say. Which can open us up to misinformation and sometimes downright bad investment advice.

Only a trained, financial professional can analyze your particular financial situation and provide objective advice that’s based on research, facts, and prevailing wisdom.

Trying to Do it On Your Own

Education and active participation in your investment strategy is positive, especially when combined with the financial expertise of a trained financial advisor.

For some people, the DIY method works, but only because they typically treat it as a second profession.  Trying to do it on your own when you’re not sure what you’re doing can lead to costly consequences.

Instead, consider hiring a financial advisor.

Financial advisors not only advise you on how to invest, but how much and when. They’ll make investment recommendations based on your total financial picture, ensuring that you invest where it makes the most sense for you and your personal situation.

Ignoring Risk or Not Understanding Risk

Nothing in life is certain, especially investing.

Every investment comes with risk, some more so than others. A financial advisor will make you aware of the level of risk associated with investments and minimize your exposure to risk as best they can.

Diversification is one such way that a financial advisor minimizes your risk by spreading investments across asset classes so that your eggs aren’t all in one basket.

Not Arming Yourself with Financial Education

Even if you do end up hiring a financial advisor to help you manage your investments, it’s still good to have a general understanding of what type of investments are out there.

Increasing your financial literacy will only help you ask the right questions.

Not Understanding Your Money Personality

One of the first things a financial advisor or even a robo advisor will ask you is how you feel about risk. Your tolerance for risk is a major determining factor in how our investment portfolios are constructed. 

Risk tolerance is determined by a few factors, such as how close you are to retirement and what you are trying to accomplish with your wealth.

Your money personality is how you feel about money, what causes you the most anxiety, and what will cause greater financial security for you.

Knowing your money personality will help a financial advisor to build an investment strategy that most closely aligns with your needs and according to your psychological comfort zone.