When you want to invest in the stock market, it's easy to make bad financial choices. Here are 5 mistakes to avoid when you're starting out in the stock market.
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In the stock market, mistakes are costly.
When you're starting out in the stock market, it's normal to make mistakes. The problem is that some of them can cost you a lot of money… sometimes for several years.
The good news is that most of these mistakes are avoidable.
After several years of investing, I've noticed that beginners often make the same mistakes.
In this article, I present to you the 5 main mistakes beginners make in the stock market and above all how to avoid them in order to increase your chances of achieving good results in the long term.
⚠️ My advice is not the absolute truth. It is a sharing of experience. Each person is free to make their own stock market choices. Investing involves a risk of losing money.
1 – Do not accept market declines
This is probably the most common mistake.
Many new investors want to make money in a few months. They panic as soon as their portfolio loses 10% or 20%.
However, financial markets regularly experience temporary declines.
Historically, investors who remain invested for the long term have generally been more likely to benefit from market growth than those who try to constantly get in and out.
👉 Time is your best ally.
2 – Doing too much trading
Buying and selling shares is called “Dabbling in the stock market”. And that’s rarely synonymous with profitability.
Many novice investors, out of impatience or a desire for quick results, trade too much and like to buy and sell their shares quickly.
In reality, Those who buy stocks on the stock market with the intention of selling them quickly often have poor results.
Many investors buy when everyone is talking about the stock market… and sell when everyone panics. In reality, they are doing the exact opposite of what they should be doing.
It's a mistake I made myself at the beginning of my trading journey 😶
Warren Buffett is a famous figure in the stock market, having become a multimillionaire through his stock market investments.
In his book, Warren Buffet's 100 Tips1. He advises to keep stock market purchases for at least 10 years. By saying the following sentence:
”If you can't hold a stock for 10 years, you shouldn't hold it for 10 minutes.” Warren Buffet
Je suis d’accord. Il faut être patient et laisser nos investissements en bourse mûrir plusieurs années pour avoir de bons rendements. ☝️
3 – Looking for a miracle investment instead of choosing a good investment
Many novice investors want to find the ideal investment that will make them the most money.
However, the stock market is volatile. Some years, a "miracle" investment will be a good one, and other years, it will be a different investment altogether.
Note that very simple stock market strategies to invest in, such as an S&P 500 ETF with a TER of less than 0.05 %, have historically generated an annualized return of more than 10%.
According to SPIVA studies, only a small proportion of actively managed funds outperform their benchmark index over a 15-year period.
Therefore, don't look for the miracle investment, just look for a good stock market strategy that has a high chance of achieving a good return over the long term.
4 – Not diversifying investments
Many novice investors forget that diversifying their investments is important to reduce the risk of losing money.
In truth, you shouldn't put all your eggs in one basket with just one or two stocks.
In trading, it is often said ”not to put all his eggs in one basketr”.
Note that this also applies to the stock market sectors.
For example, I've met novice investors with around fifteen stocks, thinking they were diversified. In reality, all their stocks were in the same sector, which is risky.
Therefore, do not hesitate to hold several diversified stocks or a diversified multi-sector ETF.
5 – Don't choose a cheap stock market account
👉 Stock account costs have a huge financial impact over the long term.
C’est logique ! Plus on paye en commissions, automatiquement, moins on aura des bénéfices ⚠️
Today, it is quite easy to find stock market accounts with low management fees.
At the time of writing, here are my favorite stock market accounts:
- American ETF = Interactive Brokers
- European ETF = Saxo
- Swiss ETF = Yuh or Neon Invest
By the way, I have written articles about several cheap stock accounts on my page ”investment”
In short, the more you save on commissions, the higher the return on your stock portfolio. 😉
Conclusion
Most beginner mistakes do not stem from a poor choice of ETF.
They mainly stem from a lack of patience, poor diversification, and decisions made under emotion.
If you avoid these mistakes, you're already doing better than many new investors.
In summary, the 5 main mistakes beginners make in the stock market are:
- Do not accept market declines
- Doing too much trading (buying and selling stocks quickly)
- Looking for a miracle investment instead of choosing a good investment and waiting.
- Not diversifying one's stock market investments
- Don't Choose a Cheap Stock Account
In reality, if you avoid these five stock market mistakes, you significantly increase your chances of achieving good stock market returns. 😉
In summary, by diversifying your assets with a good multi-sector ETF and waiting a few years, you significantly increase your chances of achieving good returns and a certain degree of financial freedom later on.
FAQ – The 5 mistakes to avoid when starting out in the stock market
Why do beginners lose money in the stock market?
Most often, novice investors lose money because they panic during market downturns, buy and sell too quickly, seek quick gains, neglect diversification, and pay excessive fees.
What is the biggest mistake a beginner makes in the stock market?
The biggest mistake is usually selling during a market downturn. Historically, financial markets experience temporary corrections before resuming their long-term trend.
Should you sell your shares when they fall?
Not necessarily. A market downturn is normal. If your investment is based on a solid strategy and a long-term horizon, selling out of fear can turn a temporary dip into a permanent loss.
Why is it necessary to invest for the long term?
A long-term investment horizon allows investors to better absorb market fluctuations and benefit from company growth and compound interest. Many investors aim for a time horizon of at least 10 years.
Why is it necessary to diversify your portfolio?
Diversification reduces the risk of a single company or sector severely impacting your portfolio. Investing in multiple companies, sectors, or through ETFs allows you to better spread risk.
Are ETFs suitable for beginners?
Yes. ETFs are often recommended for beginners because they allow you to invest in dozens, or even hundreds, of companies in a single purchase, with generally low fees.
Why are fees important in the stock market?
Brokerage fees, management fees (TER), and certain taxes directly reduce profitability. Even a few tenths of a percent saved each year can amount to several thousand francs over several decades.
Should we look for the stock that will bring in the most profit?
No. Looking for a miracle investment often leads to taking more risks. A simple, diversified, and consistent strategy is generally more effective in the long run.
Is it risky to invest in a single stock?
Yes. If this company runs into difficulties or goes bankrupt, you could lose a large part of your investment. That's why it's advisable to diversify.
How long should you hold onto your investments?
There is no universal timeframe, but many investors prefer a horizon of at least 10 years to allow time for markets to develop despite periods of decline.
How to avoid beginner mistakes in the stock market?
To minimize errors, it is advisable to:
- invest regularly
- diversify your portfolio
- favor low-cost ETFs
- avoid emotional decisions
- maintain a long-term vision
Is it possible to succeed in the stock market without being an expert?
Yes. You don't need to be a professional trader. A simple, disciplined, diversified strategy, maintained over many years, often yields better results than frequent speculative trades.
The 5 mistakes to avoid when starting out in the stock market
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The 5 mistakes to avoid when starting out in the stock market
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