Experts Say To Avoid These Rookie Investing Mistakes
Written by
Cynthia Measom
Edited by
Chris Cluff
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In a perfect world, making sound investment decisions would be second nature and lead to lucrative profits no matter what. But, in reality, nothing could be further from the truth.
“Investing profitably over a long period of time is hard work,” said V. Henry Astarjian, managing director of Waterstone Advisors LLC. “Like growing a beautiful garden, it requires consistent attention and care. If you think of yourself as an attentive gardener, you might make better investment decisions for your portfolio and actually make money over time.”
Whether you’re thinking about getting into investing or you’ve recently started, here are some common rookie mistakes experts say to avoid.
Not Having a Plan
“Whenever I invest for my clients, I have a plan,” said Joyce Rojas, financial advisor, motivational speaker and author. “I make sure I understand their end goal for this money. Is it for their kid’s education? To buy a house someday in the future? For retirement?
“There’s always a goal behind money, and the more I understand that goal, as well as the timing around it, the better I can invest. The same goes with you: Have an objective with the money you invest. Understand what it’s for, how long you can keep it invested, what exactly you’re investing in and how it aligns with your end goal.”
Not Evaluating Personal Risk Tolerance
“Many rookie investors simply choose some type of investment by what they have read or heard about such as index funds, target date funds, mutual funds, etc., without any thought of their risk tolerance and time horizon,” said Brian Stivers, investment advisor and founder of Stivers Financial Services. “It is essential for all investors, but especially new investors, to determine whether they are conservative, conservative/moderate, moderate, moderate aggressive or aggressive, and then choose an investment strategy that is suitable for their risk tolerance.”
Investing in the Latest Hot Stocks
“There are over 8,000 individual stocks on the U.S. public markets, not just one or two,” Astarjian said. “At any given time, there are hundreds of stocks that have good return prospects over multi-year periods.
“Hot stocks tend to be crowded trades, where those stocks are priced for perfection. That can spell trouble for the investor. If something goes wrong with the stories that turbocharge these hot stocks, shareholders can easily sell them with the press of a button, pushing the price down. New and DIY investors are better off investing the bulk of their money into stocks that have a history of earnings and dividend growth. These are better bets over the long term.”
Lack of Research
Another rookie investing mistake, according to Astarjian, is doing almost no research to understand a stock’s risk profile or whether it is a good investment.
“Many new investors either spend very little time researching the stocks that interest them, or they do almost no digging to understand the basics,” Astarjian said. “Over the years, I have heard a lot of headline comments from new investors as their rationale for buying a stock, but almost never anything deeper.
“The comments tend to be something like ‘this company is in the IT space, and I know it’s going to do well,’ or ‘this pharmaceutical company is going to sell their new drug in poor countries where there is high need.’
“If they just take it to the next step and ask how these companies make money and how they will make money in the future,” Astarjian said, “they may be in a much better position to determine if the investment makes sense for them. They might even be inspired to do more research and analysis before buying anything.”
Listening to Friends and Family for Stock Advice
Family and friends can offer helpful advice based on their experiences, but relying on their non-expert advice when it comes to picking your stocks is a rookie move.
“Your buddy who tells you how good he’s doing buying bitcoin is not a financial advisor,” Rojas said. “Your sister who made money buying Tesla is not a financial advisor. Stop listening to people who are winging it. Maybe they made some money in a couple of stocks, but are they telling you about the money they lost in the other stocks they bought? Nope.”
Being Too Anxious
“Some of the biggest mistakes I’ve seen newer investors make is checking on their progress too frequently,” said Jason Krueger, a financial advisor with Ameriprise Financial. “Often, long-term investors fail by reacting to short-term price movements. Don’t do something, just stand there!
“Some keys to investing success are patience and discipline — patience to give the investments time and discipline to stick to the plan. Patience is difficult given the ability to track our investments and progress by the minute. I suggest new investors don’t put their investment company’s app on their phone and only check periodically on their monthly or quarterly statements.”
Not Paying Attention to Fees
“Many people have no idea what their TOTAL investment fees are,” said Brian Saranovitz, co-founder of Your Retirement Advisor. “You may be paying much more than you think you are. Remember also: Fees are an issue in the absence of value. What value is your investment advisor providing, above and beyond investment advice?”
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