Investing in shares can be one of the most effective ways to build wealth - but only if you avoid the common traps that trip up so many DIY investors. In this episode, the team breaks down the top 5 mistakes most people make when investing in shares, from chasing hype to ignoring their own debt.
1. Chasing Hot Tips and Trends
One of the biggest mistakes people make when investing in shares is following online hype without any real understanding of what they’re buying. Reddit threads and social media forums like WallStreetBets (and its local cousin, QueenStreetBets) often fuel this herd mentality – everyone rushes in hoping to “get rich quick.”
But as Mike points out, that mentality is the fastest way to stay poor. Successful investing isn’t about guessing what will “go to the moon”; it’s about slow, consistent progress over time. Someone is always left “holding the bag” when the excitement fades, so resist the temptation to gamble on trends.
2. Lack of Diversification
Putting all your money into a few companies is risky. The data is clear – only around 4% of day traders consistently make money. A smarter strategy is to invest in diversified funds that spread risk across multiple markets.
Even the popular advice to “just invest in the S&P 500” has its limits. The US market has done well recently, but diversification into Europe, emerging markets, and New Zealand offers balance and can deliver tax advantages.
In short: don’t try to outperform the market – take the long-term average and let diversification do the heavy lifting.
3. Trying to Time the Market
Trying to predict when to buy or sell shares is another common investing mistake. Whether it’s property or shares, believing you can time trends is a losing game. As James puts it, “thinking you can work out a good or bad time to invest makes you a silly goose.”
Markets are unpredictable – a doctor who pulled $1 million out of shares during COVID thought he was protecting his wealth, but the market doubled over the next few years. You can’t know what’s coming next, so stop trying to time it. Stick to your long-term plan and ride out the bumps.
4. Investing While Carrying a Large Mortgage
Many Kiwis wonder if they should invest in shares while still paying off their home loan. The answer, according to the team, is usually no – or at least, not until your mortgage is under control.
Even if shares return 10%, by the time you subtract tax, fees, and inflation, your real return might be closer to 3%. Compare that to a 5.5% mortgage rate, and it becomes clear where your focus should be. Paying down debt is often a guaranteed return – investing before doing so can stretch you too thin.
5. Emotional Decision-Making
Perhaps the most dangerous mistake when investing in shares is letting emotions drive decisions. Whether it’s panic-selling during a downturn or doubling down to recover losses, emotional investing often leads to bigger problems – including debt and financial stress.
Avoid leveraged trading at all costs. Borrowing to buy shares might amplify gains, but it can also lead to devastating losses. Unlike property, where the bank won’t “call in the loan” overnight, trading platforms can liquidate your position instantly if you can’t top up your account.
And for those holding on to inherited shares – sentimentality isn’t a strategy. Keep a memento of your loved one, not a risky portfolio you don’t understand.
Key Takeaways
- Don’t chase hype or “hot tips” – invest based on knowledge, not noise.
- Diversify across industries and countries to reduce risk.
- Ignore market timing – long-term consistency wins.
- Pay down high-interest debt before investing heavily in shares.
- Keep emotions out of investing and avoid using leverage.
Next Steps:
Want to understand how investing in shares fits into your retirement or wealth plan? Speak with a Lighthouse Financial adviser – we’ll help you make confident, informed decisions about your financial future.
If you’d like to learn more, check out these other episodes below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
