6 Common Mistakes Young Investors Make

As young investor, it’s safe to say that you’re probably also a new investor. As a result, you don’t yet have the benefit of experience that many of your older peers have. That lack of experience can lead you to make costly mistakes in your investment choices.

Here are 6 common mistakes that young investors make.

1. Getting Excited About a Single Stock

It’s easy to get wrapped up in the market hype that often surrounds a new IPO or a stock that’s considered “hot” at any point in time. However, that type of hype often creates what experienced investors call a technical bubble. That’s when there’s so much demand for a particular investment that its price skyrockets to an inflated level.

Eventually, that price is going to come back down to Earth. When it does, you don’t want to be one of the people who bought it at its high.

Resist the urge to follow the herd mentality and buy a stock just because “everybody else is doing it.” Instead, look for companies with great fundamentals.

2. Thinking Only Rich People Invest

Some young investors think that investing is the pastime of rich people only. In fact, nothing could be further from the truth.

Millions of people have money in an IRA or 401k retirement. Those accounts use mutual funds to earn the account holders a decent return over time.

And they’re not all rich.

3. Forgetting About Expenses

Investing costs money. Those brokers aren’t fulfilling your trade orders out of altruism.

Your investing record is a credit and debit column just like any account ledger. You’ll have money go out and you’ll have money come in. Make sure that your investing expenses, which will be itemized in your statements, aren’t taking too much of a chunk out of your returns.

4. Paying Too Much Attention to Market Swings

You might think that it’s a good time to invest because the market is at a high and it will probably just keep going up. Alternatively, you might think that it’s a good time to invest when the market is at a low and there are a lot of “bargains” available.

That kind of thinking leads to poor investment choices. Ignore the swings in the market and look at individual companies that have a great track record of generating cash over the long run.

5. Borrowing Money to Invest

You might have read a recent Lending Club review and thought to yourself: “Wow! I can get $20,000 at a low interest rate and put it into the stock market!”

Resist that temptation furiously. You’ll be paying an interest rate that eats into your return. If you end up taking a loss on your investments (it happens to the best of us), then you’re in the hole for your loan too.

6. Neglecting to Diversify

You might think that you’ve come across a great company with an outstanding future and so you’ve decided to use all of your savings to buy that company’s stock. If that company doesn’t perform well, you stand to lose a good portion of your life savings.

Instead, diversify your holdings. Buy several stocks, some bonds, and keep some money in cash. That way, if something bad happens to one of your stocks, you’re not wiped out.

Even older investors make mistakes, so it’s especially easy for young investors to commit some errors. However, new investors can learn from the mistakes of those who’ve gone on before so they don’t get burned.