20 Common Mistakes Beginner Investors Make

Updated: October 30, 2023
by TJ Salvatore

As a beginner investor, you’re bound to make a few mistakes. It’s part of the learning process, but I'm sure you are aware that some mistakes are riskier than others – and more costly, too. So let’s look at some of the most silly mistakes beginner investors make. When you think about it, it's such common sense, but when you are so focused on making profits, you don't see a lot of points. 

20 Common Mistakes Beginner Investors Make

1. Not Diversifying Their Portfolio

You ever get so hyped about something that you go all-in? I did that with a tech stock a few years back. I was utterly convinced that this was the next big thing. I dumped a good chunk of my savings into it. High risk, high reward, right?

Well, let's just say the company didn't quite live up to the hype. The stock plummeted, and so did my investment value. A diversified portfolio could've saved me from that hard lesson. Having a mix of stocks, bonds, and other assets could've cushioned the blow.

One of the most common mistakes beginner investors make is not diversifying their portfolio. When you invest in just one or two stocks, you are taking on a lot of risks. If those stocks don't perform well, your entire investment could be wiped out.

Investing in a variety of types of investments. Don’t put all your money into one type. Consider a variety of stocks, bonds, and other investments such as precious metals to minimize your risk.

2. Over-Diversifying Their Portfolio

On the other hand, some beginners also try to diversify their portfolio “too much” by putting their money in more options than they can manage. Don’t spread yourself too thin. You should have a mix of different types of investments, but you don’t need to have a piece of every single type of investment out there.

After my first mistake, I got scared. I decided to scatter my money in as many pots as possible, thinking it would make me bulletproof against market downturns. I had a piece of everything - stocks, bonds, real estate, you name it.

Sounds like a plan, don't you think? Turns out, when you're too spread out, you also dilute your gains. Each win felt insignificant because the gains were offset by losses or mediocre performances elsewhere. It became a juggling act that was stressful to manage.

The key is to find an investment mix that you’re comfortable with and that will help you reach your financial goals.

3. Not Having an Emergency Fund

You know how people say you should have a rainy day fund? Yeah, I learned that the hard way too. I was so busy playing the market that I neglected to keep some liquid cash on hand. When the market dipped, I had no safety net to keep me afloat.

Liquidating assets in a pinch is a surefire way to lock in losses, right? An emergency fund specifically for investment hiccups would've made those turbulent times a bit easier to handle.

Not everyone has an emergency fund, but spending all your savings to take a financial risk is never a good idea. An emergency fund is important because it gives you a cushion to fall back on if something unexpected happens. No need to mention in case you lose your job, if you have a medical emergency, or if your car breaks down, an emergency fund can help you cover the expenses until you get back on your feet.

Without an emergency fund, you might have to rely on credit cards or loans to get through a tough time, and that can put you in a difficult financial situation. So even if it takes a little while to save up for an emergency fund, it's worth it in the long run.

4. Falling for Scam Affiliates

Marketing Scam

Another mistake beginner investors make is falling for scams. Scam affiliates usually contact you personally, via direct messages on social media, for example.

The world is full of people looking to make a quick buck, especially off folks like us who are trying to invest and grow our money. I almost got roped into a scam once.

They were offering an "exclusive investment opportunity" that promised insane returns. The affiliate links and testimonies looked legit, but something felt off. Trusting my gut, I did some deep digging and found out it was all smoke and mirrors. Always trust but verify, isn't it?

Tare looking to take advantage of inexperienced investors. They may promise high returns with little risk, but these deals are usually too good to be true. Before investing in anything, make sure you do your research and talk to someone who knows about investments.

5. Not Investing in Themselves

I've found that the most valuable asset you can invest in is yourself. For a long time, I focused solely on monetary gains and neglected my own personal development. I thought watching the market was enough.

I was totally wrong. Investing in courses, books, or even networking with people who are smarter than you can pay off in spades. It adds a layer to your life that money can't buy, making you not just richer, but also more rounded as a person.

Not investing in yourself means not learning. Many beginners think that they can just put their money into stocks or mutual funds and expect it to grow in a few years' time, but that's not how it works. You need to have a solid understanding of the markets and the companies that you're investing in in order to make wise investment choices.

If you're not willing to invest the time and effort into learning about investing, then you're not going to be successful. There are plenty of resources out there - books, websites, courses, etc. So there's no excuse for not educating yourself. The more you know, the better your chances of making profitable investments.

6. Not Tracking Their Progress

Ever take a road trip without a map? That's how it felt when I wasn't tracking the progress of my investments. Another one of the most common mistakes beginner investors make is not tracking their progress. This can make it difficult to tell if your investment strategy is working or not.

I threw my money into a couple of funds and stocks and just hoped for the best. Checking how things were doing? Nah, too much work, I thought. Bad move, right? The whole point of investing is to grow your wealth, and if you're not keeping tabs, how can you know if you're on the right track? Turns out, a couple of my stocks were underperforming for months, and I didn't even notice until it was almost too late.

Without tracking your progress, you won't be able to see how your investments are performing over time. This can make it difficult to spot potential problems early on and make changes to your strategy accordingly.

Tracking your progress doesn't have to be complicated. You can simply keep a spreadsheet with all of your investment information, including dates, prices, and gains or losses. Update this regularly so you can see how your investments are doing and make changes as needed.

7. Giving Up Too Soon

The market is like a roller coaster, and I'm not a fan of either. A few years back, I faced a pretty big downturn in my portfolio. My knee-jerk reaction was to cut my losses and get out. Seems reasonable, don't you think?

But then a friend convinced me to hold on a little longer, and I'm glad I did. The market recovered, and so did my investments.

Moral of the story? Sometimes the brave thing to do is to just hang in there.

Investing can be a long-term commitment, and it takes time to see results. Many beginner investors give up too soon when they don't see immediate returns. This is a mistake! It's important to remember that Rome wasn't built in a day, and neither are investment portfolios. Patience is key when it comes to investing.

If you're thinking about giving up on your investments because you're not seeing the results you want, think again! It takes time and patience to see success in investing. If you persevere, you'll eventually see the results.

8. Not Staying Informed

Stay Informed News

New investors often believe that they can just read a few articles or watch a couple of videos and they will be up to speed on everything they need to know. In reality, this is far from the truth.

You can't just "set it and forget it" with investments. I tried that. Ignored the news, the quarterly reports, and market trends. I assumed the experts handling my mutual funds would do all the heavy lifting. I can just coast, right? Wrong.

By not staying updated, I missed out on opportunities to adjust my portfolio and mitigate risks. Let's just say, staying informed could've saved me from some unpleasant surprises.

With the constant stream of news and information, it’s difficult to keep track of what’s going on in the world, let alone the stock market. If you want to be a successful investor, it’s important to have at least a basic understanding of what’s going on in the world around you. So how can you stay informed? Here are the basics;

Read investment blogs and news websites: 

In addition to general news sources, there are also specific outlets that focus on business and finance news. By following these sources, you can get more detailed information about what’s happening in the stock market and other financial markets. Some of our favourites include The Motley FoolSeeking Alpha, and Business Insider.

Follow influential investors on social media: 

There are also key influencers in the investing world who often share their thoughts on current events and how they might impact the markets. Following these influencers can help you stay up-to-date with current events and make better investment decisions. So you can get an inside look at how they think about different investments. 

Attend investment conferences: 

If you really want to immerse yourself in the world of investing, consider attending one of the many investment conferences that are held around the country each year. These events bring together some of the top minds in the industry, so you can learn from the best of the best.

9. Not Setting Goals

When I first started, I was like, "Let's make some money." But I never defined what that meant. Are we talking enough money to buy a car, or are we talking retirement nest-egg money? The lack of a clear goal made it hard to strategize, wouldn't you agree? It was only after I got serious about what I wanted that my investments started to make sense.

Now, each financial decision serves a specific purpose, and it's a lot easier to stay motivated.

Without goals, it's impossible to measure success or progress. Not having defined goals also makes it more difficult to develop and stick to an investing strategy.

Investing without clear goals is like driving without knowing where you're going - you may end up somewhere, but it probably won't be where you wanted to be. Before making any investment decisions, take the time to sit down and figure out what you're trying to achieve. Are you looking to generate income, grow your capital, or preserve your wealth? How much risk are you willing to take on? Once you have a good understanding of your goals, you can start developing a plan to reach them.

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10. Not Reinvesting

Getting that first dividend payment or seeing a stock make some decent gains is a rush. So I cashed out. Thought I'd treat myself a bit. Sounds good, doesn't it? Except that meant I missed the magic of compound interest.

Had I reinvested those gains, my portfolio would've grown at a much faster rate. It took me a while to realize that reinvesting was like giving my future self a gift.

Reinvesting is the way to grow your money. But the timing is important and how much you invest is also important. Ideally, you should be reinvesting your profit and watching your initial capital carefully, so you are constantly growing your financial level. 

In other words, again, learn how to reinvest, because reinvesting can lead to more risk and less return. Plan carefully about;

  • WHEN to take your profits,
  • HOW MUCH to reinvest, and 
  • WHERE to reinvest it.

11. Taking on Too Much Risk

The Investment Risks Involved

Some beginner investors mistakenly believe that the more risk they take on, the greater the potential reward. Yes, that’s true, and there’s equally a greater potential for a huge loss.

Investing involves balancing risk and reward, and sometimes taking on less risk can actually lead to greater rewards. When it comes to investing, there is such a thing as too much risk. Taking on too much risk can lead to substantial losses, and in some cases can even wipe out an entire investment portfolio.

I got into a phase where I was a bit too adventurous with my investments. High volatility stocks, cryptocurrencies, you name it, I wanted in. It felt like I was in a casino, just more sophisticated, you know? Then the inevitable happened: the market had a mood swing, and I lost a bunch of money. Going full throttle on risky investments is thrilling but man, it can burn you.

There are a number of ways to avoid taking on too much risk when investing. One approach is to diversify your investments across a number of different asset classes. This helps to spread out your risk and potentially reduce your losses in any one particular investment.

Another approach is to invest in quality companies with a proven track record of success. These types of companies tend to be less volatile and therefore offer investors a bit more stability and safety.

Of course, no investment is ever completely safe or free from risk. But by following these tips, you can help avoid taking on more risk than necessary – and increase your chances of achieving long-term investment success.

12. Failing to Plan for Taxes

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Man, taxes sneak up on you. I made some decent profits one year and decided to cash out. I was ready to pop the champagne, right? Hold the cork - came tax time, and I owed a small fortune in capital gains tax. If I'd just considered the tax implications beforehand, I could've timed the sales better or looked into tax-efficient investment options.

Not planning for taxes is a costly mistake, as taxes can eat into your profits and reduce your overall returns.

There are a few things you can do to minimize the taxes you owe on your investments. First, take advantage of any tax-deferred accounts that may be available to you, such as a 401(k) or IRA (Individual Retirement Arrangement). By investing in these accounts, you can postpone paying taxes on your investment earnings until later.

Another way to reduce your tax bill is to invest in tax-efficient securities, such as index funds and exchange-traded funds. These types of investments tend to have lower turnover, which means they generates fewer taxable gains.

Finally, be sure to keep good records of all your investment activity. This will help you if you need to file an amended return or if you are audited by the IRS.

13. Falling Victim to Emotional Investing

Investing based on emotions rather than logic is a big mistake. You are more likely to make impulsive decisions that can end up costing you dearly. It's important to remember that investing is all about taking calculated risks and making logical decisions based on research and data.

It's easy to get swept up in the moment. There was this one stock that I had a "gut feeling" about. So, I went against all reason and invested a large sum. It's tempting to go with your gut, don't you think? Well, that gut feeling cost me when the stock didn't perform as I'd hoped. Turns out, emotion and investing are a bad mix.

If you're feeling anxious or stressed about making investments, it's a good idea to take a break and reassess your goals. Make sure you understand what you're trying to achieve with your investments, and don't let emotion cloud your judgment. With a clear head and a sound investment strategy, you'll be on your way to success in no time.

14. Letting Fees Erode Their Returns

I once put money into a fund that promised excellent returns and looked pretty solid on paper. I glossed over the fees because, hey, you have to spend money to make money, right?

But those fees added up and gnawed away at my returns like termites on wood. I'd have been much better off in a lower-cost index fund, for example.

Investing involves a lot of different fees, from the fees charged by your broker to the annual expenses associated with owning a mutual fund. And while some of these fees are unavoidable, there are ways to minimize their impact on your overall returns. To avoid letting fees eat into your investment returns, you should;

  1. Shop around for a low-cost broker. There are a number of online brokers that charge very low commissions and these can add up to significant savings over time.
  2. Consider index funds or exchange-traded funds (ETFs). These types of investments typically have lower expense ratios than actively managed mutual funds, so you'll keep more of your money.
  3. Keep your portfolio simple. The more complex your investment strategy, the higher the likelihood that you'll pay higher fees for things like research and analysis. So stick to a basic portfolio that you can easily manage yourself.
  4. Review your expenses regularly. As your investment portfolio grows, it's important to keep an eye on the fees you're paying. If they start to eat into your returns too much, consider making changes to how you're investing.

15. Overconfidence


Confidence is good, but overconfidence in the investment game can trip you up. I got a few picks right and suddenly thought I was the Oracle of Wall Street. I made larger, more frequent trades, thinking I had it all figured out. That's the vibe, isn't it? Well, it turns out the market is a lot more complicated than I thought. I made some poorly timed trades and ended up losing more than just pocket change.

After all, if you believe in your investment choices, you're more likely to stick with them during the ups and downs of the market.

However, overconfidence can also lead to some serious mistakes. If you're too confident in your abilities, you may take on more risk than you can handle or make impulsive decisions without doing your research. Stay humble and always remember that there's always room for improvement.

16. Failing To Set Realistic Goals

Let me tell you, when I first got into investing, I thought I'd be a millionaire by the end of the year. Crazy, right? I was aiming for the stars without even knowing how to build a rocket. The outcome? I took unnecessary risks and made imprudent choices because my targets were outlandishly high.

Not hitting those sky-high goals was more than a little deflating. So, setting more realistic expectations is a real sanity-saver, wouldn't you agree?

Many beginner investors make the mistake of having unrealistic expectations and end up disappointed when they don't see the results they were hoping for. That’s because they fail to set realistic goals for their investment portfolios. They may have unrealistic expectations of how much money they can make in a short period of time, or they may not understand the risks involved in investing. As a result, they may end up disappointed and frustrated with their investments.

Consider what you hope to achieve with your investments and what level of risk you are comfortable taking. Once you have a clear understanding of your goals and risk tolerance, you can start to develop a portfolio that is more likely to meet your expectations.

17. Buying Into One Piece of Investment Advice

You ever hear a hot tip and think it's your golden ticket? Well, that was me. A buddy told me about a "can't-miss" investment. So, I took his word as gospel and went all-in. We all have that friend we trust, don't we? Big mistake. I should have done my own research and consulted more sources. Turns out, what's good for the goose isn't always good for the gander.

When you're new to investing, it can be tempting to take shortcuts and base your decisions on one advisor’s opinion. Unfortunately, this is often a recipe for disaster. Here are three reasons why;

  • The person giving you the tip may not have your best interests at heart. They may be working for commissions for recommending a particular package.
  • Even if the tip is genuine, there's no guarantee that the value of the investment will continue to rise. The markets are unpredictable, and even the hottest investments can take a turn for the worse.
  • Solely relying on one expert’s voice can lead to impulsive decisions and rash investment choices. It's important to do your own research and carefully consider each investment before taking the plunge.

In short, buying into one piece of advice is generally a bad idea. If you're just getting started in investing, it's best to steer clear of these common pitfalls altogether.

18. Chasing Returns

Chasing Returns

Chasing Returns

I got fixated on past performance a couple of times. I saw assets that had performed really well in the previous year and thought they'd continue that streak. Makes sense at first glance, right? Unfortunately, past performance doesn't predict future results. I chased those high returns and ended up buying at the peak more than once. By the time I invested, the good times were already rolling away.

Beginners often see someone else making a lot of money in a short period of time and think they can do the same. However, investing is not a trading or get-rich-quick scheme. It’s a long-term strategy.

When you chase returns, you are more likely to take on too much risk. You might invest in something that you don’t understand or that is too volatile for your risk tolerance. This can lead to big losses in your portfolio.

It’s important to remember that past performance does not guarantee future results. Just because someone made a lot of money in the stock market last year doesn’t mean they will this year. In fact, trying to time the market is one of the surest ways to lose money.

You need to have a long-term perspective and focus on building a diversified portfolio that meets your goals and risk tolerance.

19. Overlooking the Impact of Inflation

So there was a time when I thought playing it safe meant sticking to those tried-and-true low-risk investments. You know, stuff like treasury bonds, savings accounts, and other assets that give you that warm, fuzzy feeling of security. The returns weren't spectacular, but hey, at least I wasn't losing money, right?

That's what I thought until I ran into the concept of "real returns." The thing is, even though I was technically making money, I was losing purchasing power because my investments weren't keeping up with inflation. I realized that if inflation is around 2% and my safe investment only yields 1.5%, then I'm actually losing 0.5% in terms of what that money can buy me in the future. It's not just about the numbers on your bank statement; it's about what you can actually do with those numbers.

 I once parked a chunk of my savings in a CD (Certificate of Deposit) because it promised a "guaranteed" return. Sounds great on paper, doesn't it? The rate was around 1.8%, and I felt pretty good about it, especially since the stock market was acting like a roller coaster at the time. So, I let that CD sit and accrue interest, patting myself on the back for my "wise" decision.

But here's the twist. During that period, inflation rates hovered around 2.5%. What I didn't realize was that the 'real' value of my money - the actual stuff it could buy - was decreasing.

Let's say I started with $10,000 in that CD. By the end of the year, sure, I'd have $10,180 thanks to the interest. But because of inflation, that $10,180 could buy me less than my original $10,000 could a year earlier. In a way, it's like running on a treadmill but gradually moving backward, even though you think you're holding steady.

I learned the hard way that if you don't consider inflation, you might be making a long-term bet against yourself. Don't get me wrong, low-risk investments have their place, especially as you get closer to needing the money. But for long-term growth, you'll want to mix in some assets with higher earning potential. Just relying on those low-yield options is like trying to sail across the ocean with a hole in your boat - you might move forward a bit, but you're ultimately sinking slowly.

Now, I aim to diversify my portfolio with assets that have the potential to beat inflation over the long run. I don't just look at the immediate returns; I look at the bigger picture. It's a bit like choosing between sprinting and a marathon; both have their merits, but you need to know what race you're actually in. 

20. Not Having an Exit Strategy

Exit Strategy

So, I was invested in a handful of decent assets, and things were looking up. But I never thought about when or how I'd actually get out of these investments. That's like entering a maze without planning your way out, isn't it? Then the market shifted, and I was left scrambling. Having an exit strategy would have saved me a lot of stress and probably some money too.

An exit strategy is important because it helps you know when to sell your investment and take your profits.

There are two main types of exit strategies: technical and fundamental. 

  • Technical analysis involves using charts and other tools to identify patterns in the market that can signal when it's time to sell.
  • Fundamental analysis looks at factors like a company's financial health and its competitive advantage to help you determine when it might be time to sell.

The most important thing is to have a plan for when you'll sell before you even buy the investment. That way, you can take emotion out of the equation and make sure you lock in your profits.

Common Mistakes Beginner Investors Make: Conclusion

Investing your money can only be a great way to secure your future wealth if you do it wisely. We hope this article has helped you learn about some of the most common mistakes first-time investors make so that you can avoid them in your own journey. With careful planning, you can confidently make your first investment and begin building your financial future. Your smart investment choices will hopefully pay off for years to come.

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About the author 

TJ Salvatore

A freelancer. A nomad. An LGBTQ and animal rights activist. Love meeting new people, exploring new styles of living, new technologies and gadgets, new ways of making money.

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