Mistakes new investors should avoid

Lincoln Indicators
Written by

Lincoln Indicators

Mar 8th, 2022
Related topics

You’re young, expecting a satisfying future brimming with friends, family and a comfortable lifestyle.

You’re a Next-Generation Investor, likely aged between 18 and 25, and you’re starting to think about financial security.

According to an Australian Stock Exchange (ASX) study, nearly a quarter of all investors were Next-Generation Investors over the past two years. Additionally, some 27% of surveyed people under age 25 intend to invest over the next year.

The excitement of embarking on a journey toward financial freedom is common, as is confusion. After all, how can you ensure you get the decisions made for the future right today in the rush of enthusiasm? Further, what are the rookie mistakes to watch out for?

Here are a few tips that can help you avoid those mistakes.

Not clearing debt first

Loans and credit cards have a knack for eating away income. We’re not saying don’t save at all, but it is best to clear as much debt as possible before committing to serious investments.

Track your spending to spot potential savings, then channel that cash towards your debts. Every little bit helps.

No strategy

The desire to build wealth through investment is not a strategy. Are you saving for a new car or a home deposit? Perhaps you’re planning to retire in your 50s? The end game determines which investments will be most suitable.

Now, consider how you feel about risk and whether you’ll need access to your money in the short or long term. Successful investment strategies are planned.

If it feels overwhelming, seek professional advice to help you build your strategy.

Not diversifying

Generally speaking, the higher the potential return, the higher the potential risk.

Market-linked investments, like stocks, can be big-earners, but you’ll have to ride out economic ups and downs to get there – sometimes for ten years or more.

If this worries you, consider lower-risk investments. Conservative in nature, their returns are generally lower, but you’ll probably sleep better.

Decide how much risk you’re comfortable with. You may be better off minimising exposure to high-risk assets by diversifying your portfolio with various investment types.

Trying to predict the market

Investment markets are notoriously unpredictable; even experienced traders sometimes get their timing wrong. Buying stocks at the wrong time can mean you pay more than you should; similarly, selling at the wrong time can result in losses.

Short-term buying and selling might seem exciting, but it may be a fast-track to losing money. The way around this, as previously mentioned, is research, diversification and being prepared to stay the distance.

The magic word is patience.

Review

No investment is a set-and-forget scheme. Always keep track of your savings and your ongoing investment plan, ensuring that it continues to align with your goals, particularly as they change over time.

A flash car may be your priority today, but fast-forward a couple of years, and perhaps marriage and children are your priorities.

As your goals change, so must your investment strategy.

Key Questions to Ask Yourself

In our opinion, the most appropriate strategy to employ when building your stock market portfolio will be the one that aligns with these key factors:

  1. Your stage of life: are you in the Accumulation, Transition or Retirement phase?
  2. Your specific investment objectives: are you looking to achieve capital growth over the long term and/or looking to receive a consistent income stream through dividends?
  3. Your tolerance to share price volatility: do you have a high or low tolerance?

Feeling lost?

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Lincoln Indicators
Written by

Lincoln Indicators

Mar 8th, 2022
Related topics
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