5 Mistakes to Avoid as an Investor | Save MILLIONS

Are you new to investing? Are you currently trying to figure out the 5 mistakes to avoid as an investor? The fact that you’re here proves that you’ve started off on the right foot. Researching and getting familiar with the investing ground is the best way to start.

Often, too many people go into the investing ground with no idea of what they’re getting into. This rarely has positive consequences. It is always a good move for investors to have a plan of action before they start investing

However, besides starting off without any prior knowledge, there are other mistakes that one could make when it comes to investing. These mistakes could lead to the loss of millions of dollars in the short and the long-run, so make sure to know the top 5 mistakes to avoid as an investor.

Let’s get right into it!

Waiting Too Long

⁠You may be thinking that right now you have too many things going on to focus on investing, or you’ll simply start when you have more money to start investing. But… what you’re not realizing is that by waiting, you’re only increasing the amount that you’ll need to contribute to your investments if you want to reach a certain amount by a certain age.

I’ll explain… When you start investing early, you have the power of compound interest on your side. Waiting too long destroys this power. 

Compound Interest

As Einstein once said, “Compound interest is the 8th wonder of the world. He who understands it… earns it. He who doesn’t… pays it.”⁠ When you have compound interest on your side, you don’t need to contribute as much to your investments to reach a certain goal because your money has more time to earn more money. 

This means that what your money earns, earns more, on top of what you’re regularly contributing. Take a look at the graph below.

Under the circumstances above, with a rate of return (ROR) of 8% annually, a person contributing $160 monthly will reach $522,165 by only contributing a total of $76,800 over a 40 year period.

Compare this to a person starting 10 years later. They would need to contribute $366 monthly to reach around the same amount by the same age. And if we want to go even further, a person starting 20 years later would need to contribute $905 monthly. 

You can see how much these numbers jump the longer you wait.

So remember, start NOW. If you start now, you don’t need as much to reach a lucrative goal, keep in mind that the example doesn’t even include reinvested dividends, or a gradual increase in contributions. This means that your investment will end up being even more when including these variable factors.

Speculating

Speculation is so often confused with investing. Often, beginners walk into the investing ground calling themselves investors but simply buying stocks because they’re counting on their value to climb up, without any fundamental data to back that up.

I’ll put it as clear as Benjamin Graham—Warren Buffett’s mentor— put it, “An investment operation is one which upon thorough [fundamental] analysis, promises safety of principal and an adequate return. Operations not meeting this requirement are speculative.”

When you confuse speculative transactions with investments, you lose the leverage that a long-term investor has. Even worse, you’ll end up making emotional trades and losing a lot of money.

Although I don’t think that trading is a bad thing, it is always a good idea to know which part of your portfolio is designated for trading, and which one is going toward investments. And whatever you do, please don’t simply trust anyone with your money to tell you which hot stocks you should be buying to become the next Warren Buffett.

There are so many fake gurus everywhere who fanatically hype their audience up about trading. Making it seem like it’s easy money.

It’s not.

Don’t fall for their scams, you will lose money. Don’t make quick money a priority, long-term growth is your first priority. You can have money for speculative transactions but it is not advisable to plan on that as your retirement income.

Do your research, plant your seed, be patient, and keep speculations separate from investments, you’ll be greatly rewarded in the long run⁠.

Not Paying Attention To Broker Fees

Whenever you’re looking for a broker to invest with, watch out for their brokerage fees. In this developing world of brokers with 0-commission fees for transactions, it’s important to pay attention to how your broker is still making money.

If the broker you’re using still charges commission fees for your transaction, chances are their other methods of making money are not going to be as variable as those of a broker that charges no commission fees.

Different brokers charge different fees. Sometimes, these fees are invisible to the investor if they don’t pay attention. So whenever you’re looking for a broker, make sure you’re aware of which services you’ll be using on their platform, and which of those services will cost you money. Depending on what you plan on doing as an investor and how you plan on investing, you might benefit from some brokers more than others.

Start by looking at brokerage reviews. Learn who each broker is aimed at, and which one you could take advantage of as an investor.

Buying The “Hot Stocks”

Be careful when buying stocks. Don’t just buy stocks because other people are telling you that they’re the best next thing to buy, or that you’ll become a millionaire by buying these stocks. Doing this ties directly into the fear of missing out (FOMO)

If you’re investing for the long term, you don’t want a stock that’s only going up because the media and the FOMO buyers are pushing it up, that’s an artificial push. The value of the company isn’t actually being tied to the prices of its stock. The price of the stock is simply being pushed beyond the intrinsic value of the company. 

As an intelligent investor, you must learn to ignore what the media tells you and base your investment operations upon fundamental analysis. If you’re trading, that’s fine, fundamental data doesn’t apply as strongly. But we are referring to the long term investor whose intention is to build wealth well into their later years, not only the quick buck. 

If you really want to ensure long-term wealth, you need to be patient. In this fast-paced world, we want everything NOW. But we lack the recognition that great things take time to build. 

Don’t fall into the trap of wanting to become a millionaire by tomorrow simply because you saw some lucky ass kid on the news who did it. We never stop to think and realize that we’re on our own journey. Wanting fast wealth like that is equivalent to buying a lottery ticket, you might as well do that instead. 

Historical data has proven time and time again, that TIME IN the market always outperforms TIMING the market.

Investing Too Little

⁠If you’re investing and building long-term wealth, you can’t be too stingy about investing while splurging on the newest pair of Yeezys.

Yes, if you’re early, it’s okay to not put as much into your investment portfolio because compound interest is on your side… but if you have enough to contribute more, why not do that?

Your number 1 tool to building wealth is your money, are you leveraging your money by putting it into lucrative investments, or are you putting it into something that will lose more than 50% of its value within the next year?

Now, I’m not telling you to sell or stay away from buying basic necessities for the sake of investing. Take care of yourself, your basic necessities, build an emergency fund, buy a house, etc. but don’t be spending on Yeezys and Starbucks coffee simply because you got an unexpected bonus from work. Put that money to work! 

It’s better to have as much money as you can working for you than to be working for as much money as you can get for the rest of your life. 

Avoiding these 5 mistakes will save you MILLIONS in the long-run. However, with all this said, have you made any mistakes not listed on here? Please let me know in the comment section below. I love reading and replying to your feedback!

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24 Comments

  1. Thank you for this very interesting article on investing and should I ever decide to invest in something I will take your advise to heart. I did want to know if you could help me with something though, I am considering going into the property investment market and was wondering if you could help with a few tips and what to look out for?

    1. Sure thing! Is it for rental property? Send me an email to support@thefinancenerd.com! Happy to chat!

  2. Thanks for this article.one of the common mistakes is Lack of Patience and failing to diversify 
    A slow and steady approach to portfolio growth will yield greater returns in the long run. Expecting a portfolio to do something other than what it is designed to do is a recipe for disaster. This means you need to keep your expectations realistic with regard to the timeline for portfolio growth and returns. While professional investors may be able to generate excess return over a benchmark by investing in a few concentrated positions, common investors should not try this. It is wiser to stick to the principle of diversification. In building an exchange traded fund (ETF) or mutual fund portfolio, it’s important to allocate exposure to all major space.

    1. 100% agree! It is good for the regular investor to build a diversified portfolio. Oh and don’t forget index funds! haha thank you for your feedback !

  3. Maria Theresa Gonzales

    Thank you for your good advice.  I may add one, do not put all eggs in one basket, when something happens all your investments are not gone.  You may diversify your investment, example if you are into stock investments, put another investment somewhere else.  I agree with you that we have to do our own research and do not depend to the recommendation of other people.

    1. Yes, absolutely!

  4. Hello Misael

    I am currently new to this investing business and I am trying to learn as much as I can. Posts like yours are very helpful and I will forever be grateful. We often just go into investing without equipping ourselves with the right knowledge and often times end up losing a lot of money in the process.

    I am very much interested in the compound interest issue. I did not understand a single thing about it initially and I am slowly but surely getting there. I also agree with  Benjamin Graham. One has to have a through fundamental analysis of anything that we invest on. Just buying stock and praying everyday that the value goes up will never yield any good results. Many new investors suffer from fear of missing out and end up buying ‘hot stocks’. From experience, this never ends well. Like you say, patience is key.

    Thank you so much for such an insightful post on 5 mistakes to avoid as an investor. I have learnt a lot.

    1. I’m so glad to hear this was helpful! Thank you so much for the feedback on this. Yes, not having a plan for your investments and not knowing what you’re ‘investing’ in almost never has good results. Thank you so much for sharing this with all of us today

  5. I don’t have much knowledge on investing but are definitely thinking to get started sometime. After reading about when to start you have convinced me to get rolling sooner rather than later!

    I think I need to get a little more information on how this all works so I’m sure that no money is gone to waste or time.

    Thanks for this informative post!

    1. Sure thing! Since you mentioned that you’re a beginner, if you need help you should read this article to know what to do before you start investing! I broke it down into 7 simple steps. Once you start, you probably want to know what investment vehicles are best, assuming you are a passive investor, so I recommend this article that explains passive investment vehicles! Or if you decide to become an active investor, check out what you should be looking for in a stock in order to buy one.

      I have a lot of useful info here for beginners so feel more than free to browse around the site. I also have reviews on investment brokers to use to get started!

      Let me know if you have any questions in the future for anything at all!

  6. Hi Misael,

    This is an interesting article on investment mistakes to avoid. I found it really helpful especially in the times of cryptocurrency on the rock. To tell you the truth, I have lost a few hundred dollars investing in crypto by not doing my research on the broker and commission. This is what you have highlighted as one of the mistakes to avoid.

    The message in your article is very clear about making the investment as early as possible. But you need to do thorough research, take expert advice, etc. before investing. Your website seems to be a good resource for investment planning.

    1. I’m glad that you think so 🙂 I appreciate your feedback. I’m sorry that you lost money from choosing the wrong broker, at least you have learned from the experience and can avoid it later on.

  7. Hi Misael, I’ve just read your interesting article about investing mistakes to avoid. I agree with you that too many people go into the investing ground with no idea of what they’re getting into and I’m one of those people, that’s why I ended losing money. I’ve learned so much from your post and I’ll also share it with my friends to spread the word. Thanks once again.

    1. Of course! Thank you so much for your feedback and for sharing this 🙂 although you may have lost money in the past, at least you have learned from those mistakes and can now reflect on them to avoid them in the future!

  8. Thank you very much for writing this article. This is really highly useful knowledge for a beginner investor like me. I realized that I made some mistakes, particularly waiting too long for starting an investment. The ‘hidden fee’ (broker fee for example if you’re using stock trading) is also another mistake that I made. Just because it’s small, doesn’t mean it will be also small in total after investing for years. This is really a good article to remind me to not make the same mistake. Thanks.

    1. I’m glad this was helpful, I appreciate your feedback, and thanks for surfing around the site 🙂

  9. I enjoyed reading about the mistakes that a lot of people make when planning to invest. We all think that we will start later when we have more money but that isn’t how compound interest works, as you explained. It really is quite amazing how quickly money grows over the years. It’s almost like magic.

    Are you best to go with the cheapest stock broker fees that you can pay?

    1. Hello! I’m glad you enjoyed the read. 

      Yes, as brokers have continued to innovate, they are all transitioning to being free. But they have to make money somehow, so always make sure to read up on how they make money so that you can align your investing goals with the way they make money. Don’t just go for the cheapest. 

  10. Peggy Scott (True2U2)

    Hello, Just wanted to let you know that I came across your site and found that your content was very interesting.  I’ve been thinking about investing for quite sometime but I always chickened out. I had a stock report given to me by a friend to go by but I didn’t understand it and ended up losing over $4,000.  That was in 2015 and I said I would never do it again but here I am.  I want to learn how to do it right. After reading your content, I think I can see where I went wrong,  So, I want to know, do you have any suggestions on where I should start? I had no idea regarding the brokerage fees.  So I know that I need to do my research. If you could reach out to me and let me know how to contact you or what would be my next step, I’d really appreciate it.  True2u2

    1. Of course! Since you’re new to investing, I would highly recommend reading this article that goes over what to do before you start investing. This way, if things go south with your investments, you won’t be all out of luck. You’ll still be in a position to get yourself out of a potential hole.

      Also, if you would like to contact me, you can email me at support@thenerdfinance.com! I look forward to hearing from you!

  11. Thanks for a very interesting article on 5 mistakes to avoid as an Investor.

    I agree that researching and getting familiar with the investing ground is the best way to start.

    I like what you said about Waiting Too Long.  I wholeheartedly agree.  ⁠Waiting until you have more money to start investing could risk you needing to invest more contributions to your investments if you want to reach a certain amount by a certain age. 

    I also agree with what you said about Compound Interest.  As Einstein once said, “Compound interest is the 8th wonder of the world. He who understands it… earns it. He who doesn’t… pays it.”⁠ When you have compound interest on your side, you don’t need to contribute as much to your investments to reach a certain goal because your money has more time to earn more money. I used compound interest very successfully when I invested a lump sum of money that I inherited in 2004 into a life annuity and watched compound interest double my money for me.  After ten years, I had doubled my investment.

    I also agree with what you said about Buying The “Hot Stocks”.  Be careful when buying stocks – this is good advice. Don’t just buy stocks because other people are telling you that they’re the best next thing to buy, or that you’ll become a millionaire by buying these stocks.

    If you’re investing for the long term, you don’t want a stock that’s only going up because the media and the FOMO buyers are pushing it up, that’s an artificial push.

    As an intelligent investor, you must learn to ignore what the media tells you and base your investment operations upon fundamental analysis. 

    I also agree that, if you really want to ensure long-term wealth, you need to be patient.  Do the homework.  Consult publications such as The Motley Fool, a publication that I consult regularly.

    1. Thank you very much for your comment! I am glad you agree with everything and you found this information valuable!

  12. Losing Millions is more like it.. Waiting too long to invest has cost me a lot of money.  I wish I was paying more attention to stocks like GME earlier this year. I wasn’t in a position to invest, but I have corrected that issue. It will be interesting to see what happens with the market this year. Do you think we will see major corrections? Will Cryptocurrency continue to surge?

    1. Well, if you were looking at the fundamentals of GME, you probably wouldn’t have invested haha. Unless you were in the WSB Subreddit haha so it’s nothing to slap yourself in the face for. 

      I think we will see corrections eventually. They will happen. I don’t know when, but I know they’ll happen. And in terms of crypto, I believe it its value (specifically BTC and ETH) but I am sure a correction will take place on this too eventually. 

      These are just my thoughts. I appreciate your question!

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