10 Common Investing Mistakes To Avoid (2024)

Investing can be an effective means of building wealth and achieving your financial goals.

However, when you’re just getting started as an investor, you’re likely to encounter potential mistakes along the way which could affect your returns. From following fads to forgetting about fees, let’s take a closer look at 10 common investing mistakes and how to avoid them.

1) Not building a rainy day fund

Before getting started with investing, it’s important to have money set aside to pay for any emergencies or unexpected expenses that may arise, such as if your boiler breaks down or you need to cover the cost of car repairs. Ideally, you should aim to have around three to six months’ worth of salary built up in your emergency cash pot.

It’s crucial to choose the right type of savings account for your rainy day fund. While earning interest is important, it’s also worth thinking about how easy it is to access your money too.

For instance, while fixed-term savings accounts tend to offer higher levels of interest, you’ll need to lock your money away for a set period before you can access it. Easy-access accounts, on the other hand, allow you to withdraw money almost instantly.

2) Forgetting about inflation

When thinking about your returns it’s important to consider the impact of inflation – the rate at which the prices of goods and services rise over time.

For instance, let’s say you have £100, and over the next year the inflation rate is 10%, you’ll need to have £110 to buy what you would have bought a year earlier. This means that your original £100 is worth 10% less than it was a year ago.

Similarly, if the return you make on your investments is less than the rate of inflation, then the ‘real’ value of your assets decreases.

3) Not setting financial goals

Financial goals are key to creating an effective investment strategy that suits you.

Whether you’d like to generate a retirement fund, get a mortgage deposit together, or save for your child’s university fees there are lots of reasons why you may want to invest. Being clear on your objective will help inform the length of time you need to invest, the most suitable investment assets to include in your portfolio and how much risk you have the capacity to take on as well.

Financial goals also give you a benchmark to make sure that your investments are on the right track to achieving your goals.

4) Not using your ISA allowance

Individual Savings Accounts (ISAs) can help you retain more of your investment returns.

That’s because ISAs hold your investments or savings in a tax-free wrapper which allows you to earn profits, dividends and interest tax-free. A stocks and shares ISA, for example, allows you to invest up to £20,000 tax-free each tax year.

Tax treatment depends on one’s individual circ*mstances and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of tax advice.

5) Forgetting fees

Whether you invest using an online platform, decide to use a wealth manager or try a robo-advisor, you’ll need to pay fees to cover the cost of running your investments.

The fees you need to pay vary depending on the route you use to invest and the types of assets you add to your portfolio. It’s important to understand what charges you may need to pay and how this could affect your overall investment returns.

6) Not diversifying

When it comes to investing, putting all of your eggs in one basket is a risky strategy that may affect your returns. That’s because investing in only one type of asset could increase the risk of potentially making a loss if that asset doesn’t perform well.

Investing in a balanced range of investment assets such as bonds, shares and cash, can help to minimise potential losses when one type of investment underperforms.

7) Not doing your research

As with all financial decisions, it’s important to do your research before investing in a certain type of asset. Thoroughly researching your options and monitoring industry updates will build your investment knowledge. Seeking independent financial advice can also provide professional guidance on the most suitable investment strategy to meet your financial goals.

8) Following fads

When it comes to investing, it pays to take a long-term view rather than following fads.

While the potential benefits of some investment trends might sound appealing, they may be overrated and short-lived. So think twice before jumping on the bandwagon with other investors because an asset has become popular.

Take time to look into whether it’s a sound investment choice and if it’s right for your financial plans.

9) Reviewing your investments too little (or too much!)

Reviewing your investments is essential for ensuring that you’re on the right track to achieving your financial goals.

Ideally, you should check your investments at least once or twice a year. It’s important not to review your portfolio too often as this may skew your perspective of how your assets are performing. For instance, some assets, such as shares, tend to fluctuate more frequently which means their value could increase or decrease throughout the day.

Monitoring your investments over a longer timeframe provides a more accurate picture of their performance and whether any adjustments need to be made.

10) Not learning from your mistakes

Some of your investment decisions will be more successful than others. However, both good and bad ones are equally important when it comes to learning what strategies work best.

While it’s important to acknowledge your investment successes, reviewing investment decisions that may not have worked out so well is vital. Taking time to understand your mistakes helps to improve your decision-making and avoid repeating them in the future.