Don't Catch Yourself Making These 15 Basic Beginner Investing Mistakes

If you're new to investing -- and even if you're not -- it can be easy to make some regrettable moves that end up costing you thousands of dollars, and possibly many thousands of dollars. Here's a look at 15 common mistakes that beginners and others make. See whether you're making any of them now or might make them in the future.

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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.

Once you understand the power of investing and see how much you can amass over time, it's natural to be eager to get going and start filling a portfolio with shares of stocks. But hold those horses -- if you're carrying a lot of high-interest-rate debt, such as that from credit cards, you need to pay that off before investing. Low-interest-rate debt such as that from mortgages is generally not problematic, but if you're paying, say, 24% interest on $30,000 of debt, you're on the hook for around $7,200 in annual interest payments. And while you might aim to earn average annual stock market returns of 10% or 15% or possibly more, you can lose ground if you're paying 25%.

ALSO READ: New to Investing? 3 Beginner Mistakes to Avoid

It's also important to have an emergency fund stocked with enough to get you through at least a few months' worth of living expenses, such as food, shelter, utilities, insurance, taxes, transportation, and so on. Without such a fund, you might find yourself in trouble should your household experience an unexpected job loss or face a costly car repair or healthcare bill. You might have to charge thousands on your credit cards, and that can lead to more trouble. Or, if you have some stocks, you might have to sell some -- perhaps at a loss.

Stocks in great companies tend to go up over time, but not in a straight line. There can be short or long periods of stagnation -- not to mention occasional stock market corrections and crashes -- and you need to give your investments time to perform. The stock market is only suitable for long-term money. So if you expect to be needing money you've been saving for a down payment on a home in three years, don't park it in stocks. Look for less volatile investments, such as money market accounts and bonds.

It's also important to do some research into any company you're thinking of investing in, because it's not enough to just hear good things about it from some talking head on TV -- even if that talking head is a respected fund manager. Remember that even the best investors have bad investing ideas on occasion, and that many fund managers may not be that great to begin with. Even with a solid stock idea, it might be good for certain kinds of investors, but not for you -- for example, it might be somewhat overpriced now but suitable for those who plan to hold it for decades.

ALSO READ: New Investor? Here Are 3 Great Starter Stocks

Another classic investment blunder is being impatient. Remember that you may be able to make a killing on the stock of an amazing company, but you'll likely need to hang on to those shares for several decades, through ups, downs, and periods of stagnation. Netflix and Amazon.com, for example, have made many early investors huge sums, but only if they hung on. Impatience can lead to you trading too frequently, day trading, and/or selling out of a great stock too soon (perhaps doubling your money but missing out on quintupling it).

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.

Yes, great fortunes can be made by hanging on to great stocks for decades, but not every stock should be held for decades. There are lots of times when selling is the right thing to do -- such as when:

• You don't know much about the company.
• You don't understand how the company makes its money.
• You can't remember why you bought into the company.
• The reason you bought the stock is no longer valid.
• You will need that money within a few years.
• You have found a much more promising company in which to invest.

Have you bought into any penny stocks -- those trading for less than about $5 per share? If so, you probably know how dangerous they can be. They tend to belong to small, unproven, and often unprofitable companies, and their stocks can be ultra-volatile. Indeed, their stocks are vulnerable to people running the classic pump-and-dump con, where they buy shares of the stock then hype the company online, causing naive investors to buy shares, driving up the price, before they quickly exit the stock, sending it crashing. Steer clear of penny stocks.

ALSO READ: About to Buy Penny Stocks? Look at These 3 Companies First

Many investors make investing much more complicated than they need to. If you love the idea of researching stocks and carefully deciding which ones to invest in and when to buy and sell shares, then learn more and enjoy. But if you don't really have the time or interest and would rather spend your free time in other endeavors, then take the easy road -- which won't even give you below-average results: Invest in an index fund or two. Index funds tend to feature low fees, and they will quickly spread your money across a bunch of securities in the index they track. If you invest in an S&P 500 index fund, for example, you'll earn roughly the same return as that index's return -- which is likely better than millions of investors will do.

Many investors try to time the market, which is another blunder. Market timing involves trying to guess what the market will do in the near future -- so if you think it's due to head south soon, you might sell some or all of your stocks. But no one really knows what the market will do in the short run -- no matter what they may say. You might sell your stocks and then end up on the sidelines when the market surges 30%.

Buying stocks on margin -- i.e., with money you borrowed from your brokerage -- is another regrettable move many investors have made. It can seem appealing, because it amplifies your gains: If you have $10,000 and borrow $10,000 to invest $20,000 in a stock that doubles, you gain $30,000! But remember this: You pay interest to your brokerage all along, and your investments may not perform as expected. Buying on margin amplifies your losses, too. In the scenario above, if the stock lost half of its value, your $20,000 position becomes worth $10,000 -- and you still owe $10,000. So what might have been a 50% loss is now a 100% one -- plus the interest expense. You don't need to use margin in order to grow wealthier via stocks.

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.

We all have emotions, but the best investors among us often ignore them. For example, if the stock market is soaring, you may feel greedy, and you might snap up lots of shares of overvalued stocks that soon tank in a market downturn. Stock market bubbles bursting have burned many investors. Conversely, when the market is dropping, you might succumb to panicky emotions and sell your shares -- at just the worst time, when they're temporarily down. As superinvestor Warren Buffett has advised, "Be fearful when others are greedy, and greedy when others are fearful."

ALSO READ: Got $500? Smart Investors Are Piling Into These Stocks

It's smart to invest in companies you understand, but you also don't want to overconcentrate in any one kind of company. So if you work in, say, travel, and you know travel companies well, loading your portfolio full of travel stocks can be risky, because now and then travel stocks might take a big hit -- as many did after 9/11 or during the pandemic. It's best to spread your dollars across different industries, perhaps even including some stocks from other countries, some real estate, and/or bonds. Diversification can reduce risk.

Once you're invested in some companies, don't just forget about them. For best results, you should be keeping up with them by reading their quarterly and annual reports and following their developments in the news. Not doing so can leave you vulnerable to bad surprises that you didn't see coming. You might even miss an opportunity to buy more shares if a holding has sunk in value but still seems to have a very promising future.

If you're an index fund investor, however, you can skip all that. Just keep adding to your investment over time, no matter what the economy is doing. You'll be getting more shares of the index fund when the market is down, and fewer shares when it's up, and your shares should appreciate well over many years.

How is your portfolio doing? You don't know? That's a dangerous mistake. You might be having fun investing, and perhaps your portfolio is up 11% this year and rose 20% last year, making you think you're doing well. But you need to compare your performance with a benchmark. The S&P 500 is a good one. If it's up, say, 14% so far this year and it gained 27% last year, then you're not doing as well as you thought.

ALSO READ: 3 Software Stocks You'll Wish You'd Bought Today Five Years From Now

Ignoring inflation can be very costly. It has averaged around 3% annually over many decades, and it has been much lower in some recent years, but there are times when it can be steep -- and even if it averages 3% annually, that's enough to cut your purchasing power in half over roughly 24 years. So if you're 40 now and aiming for a portfolio worth $750,000 for when you retire at age 64, it might only have the purchasing power of $375,000 by retirement, because prices will have risen. When you plan and make an informed estimate of how much you need to save by retirement, be sure to factor in inflation. (It's smart to remember to prepare for hefty healthcare costs, too, just in case.)

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.

Finally, if you want to save a lot and earn a lot throughout your life and build a solid nest egg for your future, keep learning. Read a lot about money and money management and investing now -- and keep doing so over time. Learn about taxes, and insurance, and basic investing. If you want to stick with index funds, you don't need to learn too much about investing, but if you want to invest in individual stocks or carefully chosen mutual funds, the more you know, the better you'll likely do.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Selena Maranjian owns shares of Amazon and Netflix. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.