Common investment mistakes and how to avoid them

Fear of making a mistake can stop people investing but there is one important question that can help you make the right decisions.

Most people think that being a successful investor is just about choosing good investments, but that’s only really half the story.

Investing is the key to not being forced to work forever, but the fear of making a mistake that will cost you a bunch of money holds most people back from reaching their full investor potential.

This fear is often driven mainly by the difficulty understanding where risk comes from when you invest. But you can only manage the risk you understand, so if you want to be a smart investor you have to make it happen.

Here I cover some of the key investment mistakes people make and the risks to look out for, so you can set yourself up for success.

Shooting the lights out

This is a really common mistake people make, and personally I blame social media, the pressure placed on us by our peers, and the pressure we put on ourselves. When you invest, it’s natural to want to get an amazing investment return.

We’ve all seen the stories online, spoken to our colleagues (or even worse family members), and heard our mates talking about their cousin’s friend’s sister who made a whole swag of cash from some investment move. In hindsight it looks easy and like everyone should have been able to see this coming, and then when it comes time to invest you want the same thing for yourself.

This is totally natural. But what most people don’t realise is that when you push to get some super-stellar level of investment returns, it means you’re actually facing a heap of risk.

And if you want to invest the smart way, the question you should really be asking yourself is; how much risk do I really need to take?

If you started investing with no savings and invested $1000 per month, your money would have turned into $180k, $600k, $1.56m, or $3.84m over the past 10, 20, 30, or 40 years respectively by just investing into the Australian share market (ASX All Ordinaries Index via the ASX long-term investing report).

You can see from this example that you don’t need to shoot the lights out with every investment to build serious wealth. But you do need to avoid investment failure.

If you try to pick the big winners, you seriously increase the risk of blowing up your savings and investments and having to go back to the starting line.

When you invest, don’t get caught up in the hype. Think about how you can get stable, consistent returns and it will go a long way to helping you build your wealth without the setbacks.

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Investing in shares is one investment option. Picture: NCA Newswire/Gaye Gerard

Making choices in isolation

The reality is that even if an investment is ‘good’ in absolute terms, it can still be a bad investment for you. Whether an investment is good or bad for you depends on you.

Where you’re at today, what’s important to you, and how your situation is likely to progress over time. So you get the results you want when you invest, your investment needs to fit in with your bigger picture money strategy and the life you want to live.

Take the time to map out how your investment fits with your other money moves and you’ll be better placed to get the investment results you’re looking for.

Set and forget

These days, everything is moving so quickly. The rise in technology, global trends in investment markets and business, how we live and work, and the things that are important to us all.

The implication is that it’s now more important than ever that your money strategy remains aligned with your changing landscape.

Your investment strategy and overall money plan needs to remain consistent with this too. What you want, what’s going on with markets, and what’s happening with your money.

Whenever any one of these things changes, you need to take a look at what you’re doing and double check it’s still consistent with the things that have changed. And because these things are always changing, it means that unfortunately the idea of a ‘set and forget’ investment strategy is a myth.

Take the time to check in on what’s happening in your world and keep your investment approach consistent as things change. This way your money plan will continue to be the absolutely best one for you.

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Advice with an agenda

The investment world is filled with players who have a vested interest in you buying what they’re selling. And there are a lot of good investments out there, but there are also a lot that are just average or even pretty terrible.

When you invest, understand any conflicts of interest that exist and how they could be influencing the information you’re being given. This way you’ll be set to invest with open eyes and avoid the heartache that comes with choosing a poor investment.

Going it alone

There are a heap of moving parts that make up what makes the best investment choices for you, and navigating it all on your own is tricky.

You can fall victim to analysis paralysis, psychological biases that can push us to make bad decisions, end up confused and stressed, miss out on opportunities, and lack the confidence you need to get the results you want.

Having someone in your corner to support your investor journey can pay serious dividends. It could be someone who’s a successful investor themselves, peer group or a professional adviser.

Find someone who has been there before and can help you navigate those difficult decisions and you’ll build your money momentum faster and easier.

The wrap

Being a good investor isn’t just about choosing the right investments. It’s about understanding and managing risk, making investment choices that are consistent with your bigger picture, staying on top of what you’re doing and avoiding hidden agendas. But the results are worth it.

Take the time to educate yourself on the key things you need to know to be a truly smart investor, and you’ll put yourself firmly on the fast track towards the investment results you want most.

Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth and author of the Amazon best selling book Get Unstuck: Your guide to creating a life not limited by money

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.