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This week I have a generous guest post from Kate Campbell, Editor & Host of How To Money. Kate works in the finance industry and as a financial educator at How to Money. In today’s article, she shares 5 common investing mistakes, and how to avoid them.
When it comes to investing, one of the reasons that commonly holds people back from getting started is the fear of making a mistake.
This is understandable given your money is on the line, but something I’d really encourage you to dive deeper on.
Because at the end of the day, I truly believe the biggest mistake you can make is not actually starting at all.
But given we often learn through other peoples mistakes and can gain confidence by understanding all the ways we can go wrong. I wanted to share five common investing mistakes with you today, and how you can avoid them (because we’ve all made at least one of them at some point along our journey).
Investing Mistakes #1: Investing without a plan and decision-making process
One of my biggest suggestions for new investors is to write down a plan of attack before diving in. This gives you direction and keeps you focused. It’s easy to get distracted by every new shiny thing you come across.
I’d also encourage you to write down the reasons you make a particular investment, which you can review over time as you learn more along your journey.
Action Tip: Create a Google Doc to record your investment decisions and outline your investment plan.
Investing Mistakes #2: Investing money that you can’t afford to lose
Are you planning to invest your emergency fund or house deposit? If so, you’re playing with fire (and not the kind we like here in the financial independence community).
Make sure you’re not using any money you might need in the next few years. Otherwise, you might be forced to sell your investments during a market crash because you need the money.
Investing Mistakes #3: Investing in companies and products you don’t understand
Investing already involves risk, so why amplify that by investing in companies and products that you don’t understand?
If you’re planning to buy an ETF, make sure you understand how ETFs are constructed and managed before investing in them. If you’re planning to invest in an individual company, there’s plenty of research you should be doing first. By doing this homework, you’ll be much more comfortable with your investment decisions.
Action Tip: Take the free share and ETF investing courses on Rask Education to make sure you understand the foundations before starting.
Investing Mistakes #4: Investing all your money in one single investment
This is a mistake that investors of any age make (just read some of Scott Pape’s weekly columns), and a mistake that can financially wipe you out.
You might have heard the term diversification already. But if not, it’s the process of spreading your money across different areas (e.g. not putting 100% of your money in a single company).
Kate’s Tip: Spend some time learning about different investment options and ways you can diversify your investment portfolio. Plus, don’t bet the house on any one investment.
Investing Mistakes #5: Investing without keeping records and doing the work
This is a mistake I made starting out that I’d love to help others avoid. Every time you buy and sell an investment or are paid a dividend, you need to keep a record. This will help you down the track when doing your tax return and calculating capital gains/losses on your investments.
Plus, you need to make sure you’re updating the share registries for your investments so you’re getting paid any dividends and receiving key documents. Doing all of this will save you a massive headache at the end of each financial year.
Action Tip: Set up a Google Sheet doc or Sharesight account to track all your investments.
I hope learning more about some of the common investing mistakes and how to overcome them, will give you the boost you need to overcome the biggest investing mistake of all: never starting.
Aussie Doc Freedom is not a financial adviser and does not offer any advice. Information on this website is purely a description of my experiences and learning. Please check with your independent financial adviser or accountant before making any changes.