Investing Mistakes New Investors Should Avoid

Investing is a great way to grow your money because you may earn more over time than you can with other savings options. That makes investing particularly good for your big financial goals. 

As a new investor, it’s just as important for you to know what to avoid as it is to understand the basics of how to invest. Here are 4 common newbie mistakes.

1. Mistake 1: Being Impatient
   Lots of people think that if they pick the right investments, they should see fast short-term growth. That’s a recipe for disappointment. It could lead to falling for “hot stocks” or selling solid investments because they didn’t live up to hopes in a short-time horizon.
   
   How to Avoid It
   The truth is, with very few exceptions, investing is a long game, so your focus should be on your financial future. Don’t expect to see immediate results from your investment portfolio. Instead, concentrate your efforts on finding investments that demonstrate steady, compounding growth.
2. Mistake 2: Not Reviewing or Rebalancing Your Portfolio
   Some people start off by choosing investments they think will work for their portfolio and then never make any changes. Others set up accounts like retirement funds and keep the default choices without any further thought. These aren’t necessarily the best strategies for maximum long-term growth. 
   
   How to Avoid It
   Stay on top of your portfolio—check it often to review how it’s performing and whether you have the right mix of asset classes. Keep in mind that when the market shifts, you may need to make adjustments. Experts suggest you rebalance your portfolio at least once a year. If you’re uncertain how to do it, you can always consult a financial advisor.
3. Mistake 3: Not Diversifying 
   It can be tempting to put all your money in a “winner,” but have you heard the saying, “Don’t put all your eggs in one basket”? It means there’s more risk in putting all your money in one place than in putting it in a lot of different types of investments—or diversifying. Why? Because if there’s ever a slump, you have no other investments to balance against it.
   
   How to Avoid It
   Create a diversified portfolio of investments like mutual funds, stocks, bonds, index funds and/or exchange-traded funds (known as ETFs). And, when you’re looking at companies to invest in, choose more than one type of industry. It’s an effective way to reduce volatility. 
4. Mistake 4: Being Afraid
   If you worry that investing might be too risky, consider this: Given normal rates of inflation and the average return on savings accounts, keeping too much in savings is risky, too. 
   
   How to Avoid It
   It’s important to understand that even with dips, the market has historically recovered over time. Look at how investments perform over 10 or 20 years, not months. 
   
   As you learn the basics and find your own risk tolerance, keep your plan simple. If you’re uncomfortable going all in at once, start with a small amount of money and consider a system to automatically increase your contribution by 1% every few months until you’re comfortable.

Help When You Need It

Learning how to make the right investment choices can take time. Consider working with a team you can trust. If you’d like to discuss your options or need help developing an investment plan, Navy Federal Investment Services has professional financial advisors ready to serve members nationwide.