Whilst millennials have somewhat of a mixed reputation when it comes to finance, money and investing (smashed avocado toast anyone?), there’s no doubt this age group has a dedicated chunk of money-minded people who want to get into shares. Whether it’s because someone might think they are the next Warren Buffett, or they just want to do something that gives them a better return than a savings account, it is something that should be encouraged.
However, millennials are also in the demographic that is probably at most risk from making some serious mistakes. This likely comes from a combination of inexperience and the growing expectation in our society of instant gratification. Separately or combined, these traits can be lethal for a young investor’s capital – Warren Buffett’s first and second rules of investing are don’t lose money, after all.
So here are three common investing mistakes that I have seen millennials make on the stock market – remember understanding your weaknesses is key to becoming a good investor because no one is born one (Mr Buffett excepted)
- Following the crowd – this one rises from the allure of making a quick return. If you see a stock has been shooting up for the last week, many investors may give in to temptation and try and ride the wave for ‘a quick’ return. This attitude is fraught with danger, as you have no clue when the tide may turn. We have seen this from time to time with cannabis stocks or bitcoin. 95% of the people who followed these trends got burned.
- Listening to friends/colleagues/family – this one is perhaps not just confined to millennials, but it is still a mark of inexperience in my opinion. You are the only person who knows where your money should go, so if you hear someone tell you that stock X or Y is going to shoot the moon, have a look yourself before buying in!
- Investing for street cred – this might sound stupid (and it is) but I have seen young people who want to tell their friends they ‘invest’ and so buy ‘cool’ stocks like Afterpay Touch Group Ltd (ASX: APT) for bragging rights, when really they have no idea what they are buying (or even if the company is profitable). If you want to invest, do it properly. Do research, look at the numbers and understand what you’re buying.
One of the best ways to learn about investing is making mistakes. Although it is painful, losing money helps you learn very quickly and most investors (including this writer) have made at least one big misfire. A better way to learn though is learning from others’ mistakes, so hopefully, this article has given you some insight.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.