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, either because they think it’s risky or because they don’t understand it. The following are a few challenges that first-time investors struggle with and how you can overcome them.

Information Overload

Many people looking to get involved with the stock market google around a bit to discover the basics and quickly find themselves overwhelmed by the sheer amount of seemingly complex and even contradictory advice on the internet. Luckily, many of the most reliable trading strategies used by successful investors is quite timeless. New investors may find it easier to avoid the noise and use books as a resource to get started.

Unknown Risks

New investors may not know about the hidden risks in many seemingly simple investment strategies. This can cause their portfolios to take large hits early on in the process. To combat this pitfall, it’s important to be as informed as possible. Make sure to be familiar with the risks involved with margin, leverage, options, futures, etc. before considering them as an investment option.

Limited Capital

One of the biggest challenges that new investors face is having limited capital available to invest. This 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 essentially workarounds that allow you to invest in equity at a lower price. A couple common examples are the use of 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.

Over-Diversification

This challenge is one that is almost always self-inflicted. Many new investors feel as though they need to invest a bit in everything 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 simply go into the market right before a financial downfall. 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 into the market bit by bit and over a long period to mitigate larger fluctuations in the value in your portfolio.

Not Getting Help

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

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

Not Getting Your Personal Finances in Order

If you don’t have your personal finances in order before you start investing, you might be fighting an uphill battle.

Make sure all of your unsecured debt is completely paid off so you aren’t paying high interest rates, which are almost always 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 get your debt organized 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 all of 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, as well as give you tips and tools to help plan for your financial future.

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

Where Should I Invest?

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

The short answer, however, is:

  • M1 Finance for most investors as they are 100% free automating investing that offers a lot of flexibility. You can choose from expert-made “pies” consisting of various stocks and funds in certain industries, based on your goals or investment philosophy, or you can fine-tune your own portfolio if you’re more of a hand-on investor.
  • Wealthfront is also a great, reliable robo advisor with a proven track record and one of the first on the market. At 0.25% annual fee they’re also one of the most affordable.

Start with one of those and you can’t go wrong. They both offer a very solid and reliable investment platform, and will put you on the right track for your financial future.