24 May 2019

Seven mistakes first-time investors make

1. Not understanding how an investment works

Research investments before you make a decision. Think about how they fit in with your investing plan and don't be tempted to invest in something you don't understand just because others are doing it.

Learn about different ways to invest - how investments work, their risks, and whether they might be right for you.


2. Not having a plan

Our research shows retirees with a plan are far more likely to enjoy the kind of lifestyle they want. Whether you're investing for retirement or something else, having a plan means:

  • You'll know whether to look for investments with short, medium or long-term growth potential
  • You'll know how much risk you're prepared to take
  • You'll be able to choose the right mix of investments to get to your goals
  • Learn more about planning and the basics to consider before you invest.


3. Not paying attention to fees

Any fee you pay reduces the return you could make. Even small sounding differences can make a big difference to the returns you'll receive in the longer term.

Different investments have different types of fees so it's important to read the product information to understand these.

Our Deciding how to invest page explains more about how fees stop your money growing.


4. Chasing high returns

Past performance is not an indicator of future performance. Investments go up and down in value. If an investment did well last year, it may do poorly this year.

Focus on finding investments that fit well in your overall plan and that fit your risk level.


5. Lack of diversification

Having a mix of different types of investments smooths out the ups and downs of investing and reduces the risk of losing money.

Some types of investments such as managed funds offer diversified fund options. This means diversification is done for you.


6. Setting and forgetting

Keeping track of your investments can prevent little things from turning into big problems. Review the statements and reports you must be sent and keep an eye out for warning signs that all may not be well your investment.


7. Panicking when markets go down

If markets go down stay calm. Remember if you’ve planned well, diversified your portfolio, and you’re keeping an eye on your individual investments you should still be on track to meet your goals in the longer term.

It is normal to be nervous if a market downturn affects your investment balance – in fact, human brains are hard-wired to fear losses. Talk to a financial adviser or your product provider might help you avoid making a decision that will crystallise (lock-in) a loss.