Most ASX investors make mistakes in their investing careers – none of us are perfect but millennials, through being the youngest and often the most inexperienced group of investors, often make a disproportionate amount.
Whilst this is totally normal, it doesn't change the fact that making mistakes when investing is financially painful and it's far better to learn from someone else's mistakes than your own.
So here are three mistakes I often see millennials make when investing in ASX shares:
Mistake 1 – obsessing over share prices
This is one of the most common things I see with young investors out there. I have had excited friends tell me that one of their stocks was "up 1% today" and so they were 'raking it in'. Whilst I think keeping an eye on your shares is a great idea, checking them every hour of the day isn't. Investing is a long-term game, not something that should be tracked just based on normal market fluctuations. As Warren Buffett once said: "If you buy a farm, do you go up and look every couple of weeks to see how far the corn is up?"
Mistake 2 – buying too high, selling too low
This one is a common mistake and also one that will set you back dramatically. I have seen many millennial investors get very excited when their shares go up in value. So excited, in fact, that they think they have to 'lock-in' their gains, even if they've only owned their shares for a few months. On the other hand, they can pile more money in, chasing those 'sweet gains'.
Conversely, I have also seen would-be investors buy shares and, after watching them go down 5% or 10%, sell out, thinking they've made a terrible mistake.
Again, this is letting the markets dictate what you do, which is a terrible habit to get into if you want decent returns over the long-term.
Mistake 3 – not diversifying
I once met a young investor who told me (very proudly) that he only owned two ASX shares – Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P). On one hand, I think everyone should invest in companies they find interesting and exciting. But there is a limit. If your entire portfolio consists of unprofitable payments companies, you are leaving yourself open to a lot of risk.
That's why I think it's important for new investors to build up a diversified portfolio of companies across at least a few different industries. That way you are not wiped out if the government bans buy-now, pay-later offerings, for instance. If you only find interest in one area, you can always use exchange-traded funds (ETFs) to give your portfolio a little more balance.
