There are many mistakes that people make when investing, particularly in the earlier stages of their investing journey. Here are some common investing mistakes:
Relying solely on stock screeners for new ideas
Many people rely on stock screeners to find new companies to invest in based on a predetermined criteria such as market cap, price to earnings (PE) ratio and dividend yield.
Whilst stock screeners are certainly useful, I think relying solely on them won't help you find the best companies to invest in or filter out the ones you want to avoid.
For example, Appen Ltd (ASX: APX), which benefits from the rise of machine learning and artificial intelligence has a PE ratio of 40 which is well above the market's average PE ratio of 17.
Searching for companies with a PE ratio below the market average would screen out some high quality companies such as Appen.
Discounting the impact of fees
The rise of index funds such as Vanguard US Total Market Shares Index ETF (ASX: VTS) demonstrates that investors are becoming more cost conscious but there is still a long way to go.
Brokerage fees are yet to be disrupted in a significant way and this has a significant impact, particularly for investors with smaller amounts to invest.
For example, if you wanted to invest US$500 in Google or Facebook, Commsec (owned by the Commonwealth Bank of Australia (ASX: CBA)) would charge you US$19.95.
Your investment would need to go up 4% before you even began to make money and whilst that might not sound like much, it certainly adds up and is significant when you factor in the long term effects of compounding.
Local fintech startup Stake and the US brokerage Robinhood could be game changers in this regard with their $0 brokerage fees.
Unbalanced portfolio
Many investors do not take a portfolio approach to investing.
Even if they bought the index, people often find themselves with an overweight position in Australian banks (think Australia and New Zealand Banking Group (ASX: ANZ)) and miners (think Rio Tinto Limited (ASX: RIO)) .
If you are looking to diversify your portfolio, our team of experts have identified these fours shares as a good starting point.
