5 Common Challenges for New Investors

5 Common Challenges for New Investors

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Learning to invest is an essential part of any comprehensive financial plan. Without it, you will eventually hit a plateau in your financial growth. However, many people don’t invest because they think it’s risky or don’t understand it.

The following are a few problems that first-time investors struggle with and some tips for solving these investment challenges so you can navigate the investment world with confidence and ensure your portfolio grows with as few avoidable mistakes as possible.

Information Overload

Most investors looking to get involved with the stock market google around to discover the basics and quickly find themselves overwhelmed by the sheer amount of seemingly complex and even contradictory advice on the internet about the financial markets.

Luckily, many of the most reliable trading strategies successful investors use are timeless. New investors may find it easier to avoid the noise and use books as a resource to get started with their winning investment portfolio.

What we recommend: Choose an investment strategy and stick with it. The experts generally know what they’re doing, so following their advice and modifying it for your own goals is typically recommended.

We recommend starting with a good robo advisor for beginners, or if you’d like more control over your portfolio, read up on something like the Bogleheads investment strategy and use M1 Finance to manage your portfolio for free.

Unknown Risks

New investors may not know about the hidden risks in many seemingly simple investment strategies, which can cause their portfolios to take significant hits early on in the process. To combat this pitfall, being as informed as possible is essential.

Before considering them as an investment option, be familiar with the risks involved with margin, leverage, options, futures, etc.

What we recommend: Keep it simple at the beginning. Only invest in more complex strategies when the time is right and you know what you’re doing.

Limited Capital

One of the biggest challenges new investors face is having limited capital, which is only compounded when certain financial instruments are too expensive. However, these issues can often be solved by looking into “partial shares.”

Partial shares are workarounds allowing you to invest in equity at a lower price. Some common examples are using REITs to combat real estate investment challenges or using automated investing tools with low minimum deposits, many of which we review right here on this website.


This challenge is almost always self-inflicted. Many new investors feel they need to widely diversity their asset allocation to shield themselves from risk. However, over-diversification can significantly stunt your portfolio’s growth. It is often best to pick 2-3 options to invest the majority of your portfolio in.

Bad Timing

Though the least common of these five challenges, some new investors go into the market right before the market drops, and this has caused investors to lose money before making any!

However, this risk can easily be mitigated by dollar-cost averaging, a strategy where you invest in the market bit by bit and mitigate significant fluctuations in the value of your investments over a long period.

For example, if you invest $6,000 into the stock market and then stock prices fall, you just bought high. But with dollar-cost averaging, it could be a better idea to invest $500 per month into the stocks, so you’d only have bought $500 of inflated shares, then once it drops, you would then buy $500 more at the lower price, making your original investment less of a loss.

Not Getting Help

It’s risky to start investing without any outside help. Especially when you’re getting started, you should use some form of investment advising, whether automated or live. This will assure you that you’ll see a return on your money.

Many online resources such as this website, Investopedia, or Wealthsimple’s free Investing Master Class learn about personal finances and investing before jumping into the deep end.

Not Getting Your Personal Finances in Order

You might be fighting an uphill battle if you don’t have your finances in order before investing.

Ensure all of your unsecured debt is completely paid off so you aren’t paying high interest rates, which are usually higher than any investment gains you might realize. If you have credit card debt, pay that off first. You can use a service such as Tally Advisor to organize your debt and help you pay it off faster. Tally also has an option that gives you a lower-interest loan to help you pay off your credit card debt, so you aren’t stuck running on a financial hamster wheel for years down the road.

We also suggest using a free personal finance dashboard such as Personal Capital to get your financial accounts in one place so you can get a better view of your finances in one place. This will help you organize your accounts and give tips and tools to help you plan your financial future.

Now that you’re officially armed with overcoming the prevalent problems investors face, it’s time to get your hands dirty and start investing in your future!

Where Should I Invest?

Depending on your financial situation, goals, age, and risk tolerance, this is a different answer for each person. Since this article isn’t meant to serve as an investment guide, I suggest heading over to our best robo advisors page, where we detail the best automated investment platforms for each type of investor.

The short answer, however, is:

Wealthfront and Betterment are great, reliable robo advisors with proven track records. They’re two of the biggest, most trusted robo advisors on the market, both have a low 0.25% annual fee (Betterment also offers a Premium plan which costs 0.40%), and both offer other great financial tools and products like checking and high-yield savings accounts, loans, and more. They both take a set-it-and-forget-it approach, allowing hands-off investors a chance to put their money in, select their risk tolerance and financial goals, and let the robo advisor take care of the rest.

If you’re looking for a little more flexibility and personalization at the expense of a slightly steeper learning curve, M1 Finance is a great 100% free automated investing platform that offers exactly that. You can choose from expert-made “pies” consisting of various stocks and funds in specific industries based on your goals or investment philosophy, or you can fine-tune your portfolio if you’re more of a hands-on investor and want to choose your own stocks, asset classes, public and private sectors, and more.

Start with one of those, and you can’t go wrong. They offer excellent and reliable investment platforms and will put you on the right track for your financial future. You can also check out the best robo advisors for beginner investors here

Hopefully, these tips for solving investment challenges helped you better understand the challenges facing investors in the stock market. You now know better where to focus your energy and money.

Disclaimer: Investing involves risk. Stock prices fluctuate, the market dips and peaks, and interest rates fluctuate wildly. Past performance is no guarantee of future results. The opinions expressed on this page are exactly that: opinions, and should not be taken as investment advice. There are potential risks with any investment strategy.