6 Common Mistakes New Investors Make – And How To Avoid Them

Every investment journey begins with good intentions. Yet, new investors often fall into classic traps that can derail their financial goals. With the growing popularity of mutual funds, SIPs, and DIY investing, it's easy to get carried away by trends and myths rather than solid planning. This article uncovers six common mistakes new investors make and offers practical remedies to avoid them.

Chasing past returns

One of the most common errors is selecting funds based solely on their recent high returns. Many investors assume that a fund delivering 25% last year will repeat its performance. However, mutual funds are market-linked products, and past performance never guarantees future results. Instead of chasing returns, align your fund choices with your financial goals, time horizon, and risk tolerance.

Mixing insurance and investment

Many new investors believe a traditional life insurance policy serves both as protection and an investment tool. Unfortunately, most of these bundled products deliver neither sufficient insurance cover nor good returns. The smarter approach is to separate the two: buy a term insurance plan for protection and invest in mutual funds or other instruments for wealth creation.

Overcrowding the portfolio

The belief that ‘more is better’ often leads investors to hold 10–12 mutual funds across categories, hoping for better diversification. But overlapping holdings and too many schemes only complicate tracking and dilute performance. A focused portfolio of 4–6 well-chosen funds across key categories is usually sufficient for most goals.

Stopping SIPs when markets fall

This behavioral mistake costs investors dearly. When markets correct or volatility increases, many investors panic and stop their SIPs, fearing further losses. Ironically, market lows are when SIPs deliver the maximum benefit by acquiring more units at lower NAVs. Discipline during downturns pays off in the long run, so SIPs should ideally be continued irrespective of market conditions.

Reacting to every tip or trend

In the age of WhatsApp forwards and YouTube influencers, new investors often act on half-baked advice without verifying its relevance to their own needs. Constant fund switching and chasing trending themes without a strategy causes more harm than good. The solution lies in sticking to a personalised investment plan created with the help of a qualified advisor.

DIY investing

The rise of online platforms has made investing accessible, but not necessarily easier. Many new investors believe they can manage their portfolio alone by reading blogs or watching videos. However, investment isn’t just about choosing funds – it involves goal mapping, asset allocation, rebalancing, and emotional discipline. A financial advisor or mutual fund distributor acts like a doctor – diagnosing your financial situation and prescribing suitable solutions, saving you from costly missteps.

Conclusion

Investing is a powerful tool to achieve financial freedom, but only when approached with the right mindset. Mistakes are part of learning, but being aware of these six common pitfalls can protect your portfolio and your peace of mind. Remember, wealth creation is not a race – it’s a guided journey. Partnering with a trusted advisor can help you stay focused, avoid behavioral traps, and build a robust financial future.