The most common investing mistakes
Mistakes are an inevitable part of life and the journey to becoming a successful investor. However, being aware of the most common traps is the key to avoiding them. Our Head of Education Tim Bennett highlights five with some tips on how to ensure you don’t fall into them. Watch the video below to learn more.
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- Buying single stocks. This is effectively gambling since no firm is “too big to fail”. A much better approach is to set up a diversified portfolio so that the impact of one company stumbling, or even collapsing, is mitigated
- Crowd following. The best investors don’t follow everyone else by buying stocks as they rise and become expensive, and selling as they are falling and becoming cheap. Instead, they aim for the opposite – “buying low and selling high” – by doing their own research and thinking independently
- Market timing. Trying to second-guess the movements of the stock market in the short-term is a fool’s game. Instead, an investor should commit to a long-term view and not get distracted by media “noise” that might tempt them into trading too often
- Impatience. Over the long-term, stocks have demonstrated their ability to generate inflation-beating returns thanks to the sheer power of compound growth. However, the correct attitude is needed. A rational, calm approach works best, so that an investor avoids panic-selling, for example, every time the market dips
- Spending dividends. A long-term share portfolio should not be treated like a cash machine. Instead, investors should stick with their chosen strategy and make sure any dividends paid by the companies they hold are reinvested in more shares rather than withdrawn and spent. That approach maximises long-term returns since those dividends can then grow along with the underlying shares