How to avoid beginner mistakes and become a smarter investor

The danger of emotional investing

​Stepping into the world of investing can be both exciting and intimidating, yet the path is often littered with avoidable pitfalls - especially for beginners. Many novice investors fall prey to emotional decision-making, blindly follow hype, or underestimate the subtle but devastating impact of fees. While these mistakes may seem trivial at first, they can cause significant setbacks over time. The good news is that with the right mindset and some real-world wisdom, they are entirely preventable.

​One of the most frequent missteps new investors make is allowing emotions to guide their decisions, particularly during market volatility. The financial markets are inherently volatile, and price swings can evoke fear, greed, or a dangerous sense of overconfidence.

​Consider the story of Anna, a 34-year-old graphic designer from Manchester, who saw her retirement investments plummet by 30% during the March 2020 Covid-19 pandemic market crash.

​Consumed by panic, she withdrew her funds, hoping to cut her losses. What she didn’t anticipate was one of the fastest market recoveries in history - by August 2020, major indices had rebounded, wiping out the losses entirely.

​Because Anna acted on fear rather than a well-thought-out plan, she missed the recovery and locked in her losses. Her experience highlights a critical lesson: emotional investing can do more harm than the market downturn itself.

​It is not unusual for stock markets to experience corrections, sometimes sharp ones – the last one being the US tariff induced March-to-April downturn in global equity markets which was swiftly followed by many indices making new record highs by June 2025, though.

​Avoiding hype and FOMO investing

​Just as fear leads some to sell at the wrong time, greed or the fear of missing out - often abbreviated as FOMO - drives others to chase hot trends without proper research.

​In early 2021, Mark, a 27-year-old delivery driver from Birmingham, invested £5,000.00 into GameStop stock at the peak of the Reddit-driven frenzy watching his investment balloon within days. But rather than taking profits, he held on, believing the surge would continue. Soon after, the stock crashed, and Mark exited with only £900.00.

​His story is not unique. Many new investors are drawn to what appears to be easy money, only to be caught in the aftermath of a market correction. Investing based on online hype rather than fundamentals is like gambling dressed up in financial jargon.

​A more recent example is a modest Guildford-based web design firm which has seen its market cap surge from £3.7 million to nearly £1 billion between listing in April and its June peak. Most investors heard about the company’s spectacular share price rise around the 20 June, though, just when it peaked.

​The Smarter Web Company daily candlestick chart 

​Those who bought the shares in the 550-to-650 pence region would, as of the 8 July, sit on a 20%-to-30% loss, having witnessed an around 40%-to-50% drop within days.

​Share dealing investors should base decisions on fundamentals rather than online hype or social media trends.

​The hidden impact of fees and costs

​Another often-overlooked mistake is ignoring the long-term impact of fees, which might appear negligible but can quietly erode returns over time. Investment costs might appear negligible at first glance - just one percent here or a few British pounds per trade - but over time, they can quietly erode returns in a major way.

​If you invest £10,000.00 in a fund earning 7% annually over 30 years, you'd end up with over £76,000.00 without any fees.

​Introduce a 1.5% annual fee, and that same investment shrinks to about £57,000.00 - a difference of nearly £19,000.00.

​These figures underline the importance of understanding what you're paying for, whether it's fund management fees, brokerage commissions, or account maintenance charges. Unfortunately, many beginners simply don’t factor these in, assuming small percentages won’t make a difference. But compounded over decades, the cost is substantial.

​Trading platform users should carefully review all costs including fund management fees, brokerage commissions, and account charges.

​Building a smart investment strategy

​To become a smarter investor, it's essential to begin with a clear and realistic strategy based on your specific goals.

​Before investing, consider whether you're saving for retirement, a home purchase, or your child's education, as each goal requires different timelines and risk levels.

​Diversification remains crucial - spreading investments across different asset classes - such as stocks, bonds, real estate, and even cash - helps smooth out market cycles.

​Online trading participants should consider using tax-efficient accounts like ISAs to maximise returns. Making full use of your annual ISA allowance can help your investments grow free from capital gains or income tax, significantly boosting your returns over time.

​Still, even with these tax shelters in place, it’s important not to overcomplicate your portfolio. Beginners can easily become overwhelmed by the abundance of choices. Reading too many conflicting opinions from blogs and forums often leads to analysis paralysis - the inability to make a decision at all.

​Trustworthy sources such as the Financial Times, The Economist, IG or government-backed guidance from the MoneyHelper website offer solid, unbiased information.

​Staying disciplined and informed

​Once your portfolio is established, avoid micromanaging your investments as constant checking leads to unnecessary worry and impulsive decisions.

​Instead, reviewing your investments once or twice a year is usually enough - just make sure those reviews focus on whether your financial goals or risk tolerance have changed, rather than reacting to temporary market moves.

​Successful investing isn't about perfect timing - it's about discipline, patience, and learning from mistakes.

​How to start investing wisely:

1. ​Define your investment goals and time horizon
2. ​Research different investment options and associated costs
3. ​Open an account with us to begin building your portfolio
4. ​Start with a diversified approach across asset classes
5. ​Review and rebalance periodically, not constantly

​Remember that all investing carries risk, and you should never invest more than you can afford to lose. Consider seeking independent financial advice if you're unsure about your investment strategy.