Hello investing masters,
Kate here, co-host of The Australian Finance Podcast and the person ready to help you invest your money and time, better! This article was originally shared in the Rask Education student newsletter. Simply sign up to a course on Rask Education (like our ETF investing course) to get this directly into your inbox each fortnight.
In the spirit of reflection, today I want to talk about some of the common mistakes investors make (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 you can push through it.
At the end of the day, I truly believe the biggest mistake you can make is not actually starting at all.
Given we should try to learn through other people’s mistakes, and we can gain confidence through understanding all the ways we can go wrong, I wanted to share five common investing mistakes with you today, and how you can work to avoid them.
Mistake #1: Investing without a plan 😵💫
One of my best suggestions for new investors is to write down a plan of attack before going to the battlefront. This gives you direction and keeps you focused in times of uncertainty. It’s also very easy to get distracted by every new shiny thing you come across in the first few years.
Oh, look! Lithium companies…
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 (and revisit during periods of market volatility).
Action Tip: Create a Google Doc to write down your investment decisions and outline your investment plan. If you’re a Rask Core 🌏 member, check out the DIY Investment Guide (PDF) once you have logged in.
Mistake #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. Ouch!
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 decline because you need the money.
Mistake #3: Investing in companies or ETFs you don’t understand 🙏
Investing in anything involves risk, so try to avoid amplifying the risk by investing in companies or products you don’t understand.
If you’re planning to buy an ETF, make sure you understand how ETFs work and what’s inside the fund, before investing. We unpacked a lot of those ideas recently on our ETF Investing mini-series.
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 our share and ETF investing courses on Rask Education, to make sure you understand the foundations before you get started.
Mistake #4: Investing all your money in one thing 🎯
This is a mistake that investors of any age make (just read some of Scott Pape’s newsletters), and something that can 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 tech stock ETF or in one single company).
Kate’s Tip: Spend some time learning about different investment options and the ways you can diversify your investment portfolio. It seems like there’s an ETF for everything these days…
Mistake #5: Investing without keeping records and doing the work 🧻
This is a mistake I made starting out. And one 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 of this. It will help you down the track, such as when you’re doing your tax return and calculating capital gains/losses on your investments.
Plus, you need to make sure you’re updating your details in the share registries (e.g. Computershare or Link Market Services) for each of your investments. Doing so means you’re actually getting paid your dividends and receiving all of the key documents. Doing this will save you a massive headache at the end of each financial year.
Action Tip: Set up a Google Sheet or a Sharesight account to track all of your investments in one spot.
***
Take a moment now and look back at my 5 common mistakes.
Have you made any?
I definitely have. And I’m doing better for it.
***
I hope learning about some 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.
Take it from me. It’s worth it.
✨ Have any money mistakes to share? Let us know!
Let me and the Rask Core 🌏 community know about them (so we can all learn together) by jumping into the Community forum. It’s now only $9.99 per month to be part of Rask Core – cancel anytime!
Cheers to our financial futures,
