9 Mistakes Millennial Investors Should Avoid

Millennials tend to get a bad rap when it comes to being financially responsible, but actually, a lot of younger people are trying to build solid investment portfolios. But sometimes, with age comes experience, and millennials risk falling victim to certain blunders that could cost them money over time. If you're a millennial, here are a few investing mistakes you should aim to steer clear of.

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As a millennial, you may not have the same financial means to invest as someone 10 or 20 years your senior who's likely earning a much higher salary. But that doesn't mean you're out of options, either. These days, more brokerage firms are making it possible to buy fractional shares, which means you're buying a piece of a share of stock rather than a whole share that may be financially out of reach for you. Fractional shares let you build a solid portfolio without having to save up a fortune first.

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As a millennial investor, the most powerful weapon you have in your arsenal is time, and the sooner you start buying stocks, the more wealth you stand to accrue. Put off investing, and you'll limit the extent to which your portfolio grows. Case in point: Investing $300 a month at a 7% average annual return starting at age 25 will give you almost $719,000 by age 65. Start 10 years later, and you're looking at just $340,000, all other things being equal.

It's easy to hear a company's name a lot on the news and assume it's a good investment. But chasing big names is a big mistake. As a general rule, you should never invest in a company whose business model you don't understand. Before buying a company's stock, make sure you're familiar with how it makes money, how it manages its cash, and what gives it a competitive edge.

Investing in stocks carries a fair amount of risk, but in exchange, you'll be rewarded with higher returns. With bonds, you're less likely to lose money, but if you play it too conservative in your portfolio, you'll limit your ability to grow wealth. As such, don't shy away from stocks, especially if you're fairly young. Doing so could cause you to fall short of your financial goals.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Having a healthy mix of stocks can protect you from serious losses in your portfolio. Rather than load up on stocks from a single market segment -- say, auto stocks or bank stocks -- aim for a diverse mix. That way, if one industry takes a hit, your personal losses will be minimized.

ALSO READ: Got $5,000? These 3 Resilient Stocks Will Diversify Your Portfolio

Researching individual stocks takes time, and if you're not sure what to look for, you could wind up adding companies to your portfolio that don't really belong there. A better bet, therefore, may be to load up on index funds. Index funds are passively-managed funds whose goal is to match the performance of the market indexes they're tied to. An S&P 500 index fund, for example, will aim to mimic the S&P 500's performance. Index funds offer instant diversification, and they're a good bet for anyone who's just getting started with investing.

It's easy to panic when you see your portfolio balance drop after a major market event or when a specific company's stock loses value, but one thing you must remember is that you don't lose money until you actually go out and sell off investments at a loss. Rather than panic when your personal balance declines, pledge to sit tight and wait things out. If you don't, you'll risk locking in losses you might really struggle to recover from.

Some people who invest in the stock market go in expecting to get rich overnight. Don't be like those people. Doing well in the stock market takes time and persistence. You should plan on holding your stocks for many years to grow your wealth, and if you get impatient, you'll risk making mistakes that ultimately cost you money.

ALSO READ: The Power of Long-Term Investing in 1 Statistic

When you house your investments in a traditional brokerage account, you can access that money at any time. When you invest in a retirement savings plan like an IRA or 401(k), you're barred from taking withdrawals until you're older. But in exchange, you get to enjoy a host of tax breaks. With a traditional IRA or 401(k), your contributions will go in tax-free, saving you money up front. With a Roth IRA or 401(k), you get to enjoy tax-free withdrawals during retirement. There's nothing wrong with divvying up your investments between a brokerage account and a dedicated retirement plan, but don't discount the benefits of saving in an IRA or 401(k).

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

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