The past few years have seen a significant influx of new investors, to where in 2020 alone, 15% of investors had started within the year. Charles Schwab defined it as an ‘investor generation’, a large-scale wave of individuals looking to make their money work harder, and figuring out a complex new world for the first time.
Many use small amounts, often fractions of their savings or small chunks of their salaries to stock pick or invest in niche markets like cryptocurrency. However, the investing game is no simple thing. For retail investors, with no institutional training or backing, the risks are real and many aren’t obvious. Often investing is a practice that is difficult to separate from emotion and yet is best executed without significant emotion making their decisions.
The pitfalls that challenge retail investors are a lot less to do with making gains at all costs and more to do with education, risk management, and a clear, realistic picture of your investment ambitions.
Never Switching Off
It’s very easy to do, but obsessing over market trends is like trying to predict where a leaf blowing in the wind might end up at the end of a day. You’re going to not only be caught in the ups and downs of the markets day-to-day but also find yourself a lot more likely to sell or buy assets with no long-term context of their value.
The Wrong Tools
Day trading or short-term trading are not dirty words. If you want to go for it, however, opening a basic GIA (General Investment Account) and just roaming the stock lists for anything you like the look of isn’t the way to go. Nor is following news as it comes thick and fast; you’ll only stress yourself out. For example, take this review of Plus500, where it’s made clear that trading CFDs (Contracts for Difference) is a good way to day-trade by allowing you to access more leverage and invest in higher-value stock over the shorter term.
These sorts of platforms offer access to short-term markets like forex markets. Alternatively, if you want to focus on the long-term, look for a model portfolio provider with a conservative speciality. Do your research and use platforms that will complement your style and approach.
Bad Bandwagons
There’s an idea in investing that if you hear about a trend around a certain stock, it’s already too late. In most cases, following trends is a recipe for disappointment, as the true value of an asset or its outlook beyond the brief spike in popularity rarely enters the equation.
You might end up holding onto an asset that plummets in value at short notice, all because of its brief moment in the spotlight.
More Than You Can Afford
Here’s another saying; never invest more than you’re willing to lose. Few mantras make more sense in investing, since it’s a practice which is popular for making gains but can equally feature the opposite.
Be very clear about not only the level of risk you’re exposed to but the amounts you’ve invested. Gains are great, but if you’re going to need the money, you’re putting it into a portfolio for something else in the short term, you shouldn’t be investing it.
No Goals
Your strategy is your best friend. Looking for ethical investments? Make them. Want to invest in unloved stocks with undervaluations? Research them and build your approach around them. Many retail investors chase gains over goals because they invest with pure emotion.
If you say to yourself you’d like to make 6% annual returns over 5 years, and you’ve earmarked a few industries or funds you like, follow that logic and stick to that plan.
Even with all these little tweaks and approaches, at the end of the day, you won’t know everything or be able to predict the future. Even the best investors and biggest institutions make errors or judgement. So the best advice is not ‘buy this, or buy that.’ The goal is to be rigorous in your research, clear in your goals, and remember that patience and control are your best friend.
