There’s nothing like volatility in the financial market to check an investor’s ability to make rational, objective decisions. Whether share prices are moving up or down, it’s common for individuals and personal investors to make mistakes that are driven by emotion. A surprising number of personal or first-time investors have a tendency to anticipate returns that outpace cyclical fluctuations in the global market – they often believe if the market is going up, it’s going to continue going up, and if it’s going down, it’ll keep going down.

Where most share prices go from here is actually anyone’s guess. We can’t predict the future, and any number of factors can contribute to a dip or a rise in your personal wealth. Yet if markets keep climbing higher, it’s good to be wary of a misplaced sense of euphoria — which is commonly noted by financial advisors as an easy mistake made by individual investors.  

Keeping an objective, calm and focused view of your long-term strategy can keep you from making rash decisions, or having a knee-jerk response to sudden rises or dips in the market.

Whether you’re a novice investor or have watched your investments go through the wringer more than a few times over the last several decades, here are some other mistakes to avoid:

1. Not understanding your risk tolerance

Risk tolerance has a couple of parts: 

• How well you can stomach the inevitable ups and downs in the stock market, and
  
  
• how long until you plan to use the money.
  
  

Generally speaking, the longer a time horizon you have the more can you afford to be invested aggressively in shares and wait out periods of volatility or fluctuations. The emotional side (whether you can sleep at night if your portfolio’s value drops) can feel like a different story. The challenge is being able to make logical decisions and not let your anxiety get the best of you. While studies indicate that more than 55% of investors say they’re willing to take on more risk to get ahead, more than 75% of investors also said they’d prefer safety over aggressive investment performance. In other words, many investors may be taking on more risk than they should.  You need to know your own risk tolerance before making any investments, and what that will realistically mean in the event of a downturn. 

2. Panic selling

Whether flagged as panic selling, relying on emotionally-based investing decisions or being stuck in a short-term focus, this category ranked first on the biggest list of investing mistakes. About 93% of financial advisors cite this as the largest reason for significant portfolio losses. The basic problem is that these behaviours will commonly yield poor financial performance results. Say the global share market or a single share price drops 10% and you think ‘I have to get out before it drops further’ - you’re basically locking in a 10% loss. Remember, any losses reflected in your day-to-day account balance are never final until you sell. And it can be harder to get back in the market and stay put if fear is driving your trading decisions. Whether the market is up or down, emotions can get the better of us from time to time. Keep focused on your long-term financial goals and how to achieve them – a dip will recover with time. Your losses may not. There’s a fear of missing out that we tend to have, and we try to capture as much of the upside that we can. But then the market goes down and we see our assets at risk and we run, so we lock in losses.

3. Trying to time the market 

One of the biggest misconceptions about investing or trading in the share market is that if we know enough, we can count on a massive profit by timing the market. More than 90% of day traders – who frequently trade shares on the short term every day for a living – are operating at a significant loss. Also worth noting is this; the more frequently we trade, the more money we will lose through brokerage and management fees. Financial advisors often state that individual investors will most often lose out by trying to time the market (trying to sell high and buying low by predicting what the market is about to do) instead of sticking to a long-term, calculated investing strategy (known as ‘buy and hold’), which includes compounding long-term interest gains in the investor’s favour. 

4. Too much risk in pursuit of yield

For investors in search of steady income (for example, regular low-risk income from bonds) low interest rates may cause you to look towards higher-yielding investment classes. A quarter of surveyed advisors said focusing too much on the yield and not considering the risk, fluctuations or drops that accompany yield is a significant mistake. Generally speaking, the higher the yield, the riskier the investment. Always understand that higher yield means more risk in your portfolio – a short-term spike is never guaranteed to perform consistently and any rapid-fire shares or funds in niche sectors may be completely devalued a year later. Looking for reasonably steady, consistent long-term performance will always beat out any rapid-growth, rapid-loss equities. 

Planning for your financial future is usually the last thing on the minds of anyone under 30! With the stress of all the major ‘first’ milestones that often come with this period of our lives, such as buying a car, saving for a house, paying a mortgage or planning for a family, it can feel hard to even think about saving for our future. One of the biggest blockers for millennials who are starting to dread planning that far ahead, is that in our everyday lives financial insecurity can become a serious source of stress.

However, working toward financial security doesn’t have to be an exercise in self-deprivation as most of us might assume. Setting, working for, and attaining financial goals has a significant number of benefits that pay off both now and down the track!

Here are 8 steps that will help allow you to work towards long-term financial security, while making sure you’re taking the time to breathe along the way:

1. Take the time to enjoy yourself 

Enjoy the opportunities, energy and experiences around you! Living a successful, happy life for anyone is all about creating a comfortable balance between your time with family, friends, work and leisure. With that in mind, finding a proper balance between your life today and your future self is also important. It’s important to work out early how to decide what we spend for ourselves today versus what we choose to invest in our future. Finding the right balance here is an important first step toward achieving financial security.  

2. Your greatest financial asset will always be yourself

Your skills, knowledge, and experience are the biggest assets you have – and you can take these assets anywhere at any time. The potential value of your future earnings will outpace any savings or investments you might have for most of your career, and you can continue expanding your income throughout your life in any way that’s really feasible for you. Think of yourself as a financial asset, and remember that investing in yourself now will always find a way to pay off in the future. Ways that you can potentially increase your own value include hard work, continuing to upgrade your skill set and knowledge, and by making intelligent career choices. 

3. Set short-term goals in order to achieve long-term ones 

You never know what life has around the corner, and circumstances can always change at any time. As such, the prospect of planning far into the future is a daunting task for young investors. Rather than staying fixated on your long-term goals, you can steadily work towards your long-term vision with a series of small short-term goals - ones that are both measurable and precise. As you hit your short-term milestones, set new ones! By staying flexible and adaptable with your short-term goals, you can make steady progress and factor in any change in your lifestyle as you go.

4. Take the time to become financially literate 

Earning income is one thing, but saving it and using it to generate wealth passively is another. Money management, financial know-how and investing prinicples are lifelong endeavours, and making prudent financial and investment decisions is crucial for achieving your long-term finance goals. Research has consistently shown that people who have taken the time to educate themselves and expand their financial literacy end up with more overall wealth, than those who are not. Taking the time and effort to become knowledgeable in managing your money, personal finance strategies and investing will pay off throughout your life!

5. Be a planner – not just a saver 

People who are successful (whether that’s personally, financially or professionally) are always goal oriented – they set active goals and build a plan to reach them. Even the process of writing down your goals or telling others who can hold you accountable to them can help you to achieve your goals more effectively. Remaining goal-oriented and following a plan means taking genuine control of your life – and your financial independence and security can improve accordingly as you build your work ethic and consistent habits. 

6. Think ahead for your retirement

Whether you’re just out of school, years into the workforce or taking a sabbatical, retirement planning is usually the last thing on our minds. So if you don’t have to for now, you don’t have to make it your biggest priority! If you follow the other items in this article to start off with, you’ll be more financially secure, informed and prepared for the short-term, and you’ll also be more financially prepared for the distant future as well. By sticking to a ‘pay yourself first’ strategy, you won't have to worry about how much you're contributing over time. The most important thing is to develop the habit of regular, consistent saving. You can always increase your contributions or investments when your income rises, or when you've achieved more of your short-term goals.  

7. Moderate your lifestyle costs – always spend less than you earn

Many fresh graduates may find that in the first couple of years of working, they have more cash flow than they’ve ever been used to before. The best move you can make early on is to put the money toward reducing your debt or adding to your savings. As you advance in your career and earn greater responsibilities, your salary should increase accordingly. Where people often get into trouble is by feeling the need for a higher standard of living that exceeds what they can afford – also known as ‘lifestyle inflation’. There is always the temptation to start using this newfound wave of extra income to buy new possessions, luxury items and generally live a more luxurious lifestyle. However, none of these material possessions will actually increase in value over time, and frivolous spending can quickly escalate into debt. If the cost of your lifestyle lags your income growth, you’ll always have extra funds each month that can be put toward your financial goals - by consistently keeping your standard of living below what you’re earning, you’ll never have to cut back to accumulate money. 

8. Seize the opportunities – take calculated risks 

There’s a big difference between taking careless risks and calculated ones when it comes to your money management. Taking calculated, well-researched and well-thought-out risks when you are younger can be a wise decision in the long run – you’ll have time on your side to earn compound interest, you can recover faster financially if you make a loss, and you’re likely not dependent on any investments you make as your sole source of income. It’s possible you might make a few mistakes along the way, but remember, mistakes are always lessons rather than outright failures. We often learn more from our mistakes than from our successes! 

Spending habits are emotionally based for many of us. With so many spending triggers readily available at a moment’s notice, it can be hard to actively stick to your plan sometimes. Here’s four things you can start doing immediately - that will help you pinpoint your spending triggers, build a plan that works around them, and stick to a plan that brings you closer to your financial goals!

We can often find ourselves acting to a set emotional spending pattern on a daily basis. We might make a decision to be better with money and then spend time building the perfect spending plan. But within weeks, the initial fresh energy can fade along with our plan. There goes the momentum!

The truth is, the best financial plan is one you can stick with from the beginning. Expert finance information and factual spending advice is everywhere, but only you can really decide if it aligns with your values and it feels realistic for your lifestyle.

Understanding your own emotional finance triggers and planning for inevitable setbacks can also help bring your plan into reality. It doesn’t have to be perfect or precise – we have to live along the way! Don’t worry if you experience a setback, as long as you find ways to get back on track then it’s not the end of the world.

You can work with the following steps as you evaluate your financial health and spending habits:

Focus on what you really want out of your life

• Try to avoid getting caught up in what others might be doing (or what you think you should be doing); instead, think about what you ultimately want to achieve for yourself.
  
  
• Finish the sentence “With this plan, I will have the freedom to…”
  
  
• Ultimately, only you can choose the lifestyle you want to lead! Whether that involves a stable career with lots of security, or a spontaneous life travelling the world (or maybe even a combination of both), always design your life and your financial plan to reflect your life goals.

Understand your deeper entrenched beliefs around money

• We all have an internal self-narrative that drives our decisions, and finance matters are no exception. You might hear from individuals who are unconsciously caught in a negative feedback loop, “I’ll never be good with money,”. If you believe that you will always struggle with money, you will inevitably always struggle with money.
  
  
• It’s so important to understand your own beliefs around money and how it impacts your financial decisions. Those who have this deeper understanding (and take the time to objectively self-reflect) are often much more able to create and stick to healthy financial habits.
  
  
• If you find yourself being driven by a negative money mantra, try shifting your thinking more towards the idea that money is flexible and ongoing. It’s not a contest – there’s no winning or losing! Replace the thinking with a specific, growth-oriented action such as “I am actively learning about and re-evaluating my spending habits.”

Plan to include and correct your spending triggers

• The biggest step of any financial plan is actively monitoring your spending habits. A lot of the time you’ll need to uncover any hidden spending you might have missed; you can’t manage what you can’t see!
  
  
• Think about your purchases over the past 48 hours. How many of those were on auto-pilot? When you might examine your spending patterns, you’ll likely notice that there are external triggers that drive a lot of your spending, often even without thinking about it.
  
  
• Create provisions for those patterns in your plan, and start find new ways you can start to disrupt your existing spending triggers.
  
  
• Pin-point one spending habit that you usually regret and find where the trigger comes from. Is there something you can do now to disrupt that feedback loop?
  
  

Build your plan with forgiveness in mind

• A lot of the time, we’re driven to make a financial plan in tough moments to solve stuck situations – anything from maxed-out credit cards to a sudden vet bill. In these circumstances we tend to plan in a scarcity mindset, so we’re left with an overly restrictive and unrealistic financial plan that doesn’t match our everyday behaviours.
  
  
• Don’t be afraid to be ambitious with the amount that you’re looking to save, or be ruthless with spending cuts. However, for a plan to really stick you should always be honest with yourself. Build-in forgiveness to reduce the shame around failing if you make a mistake or find yourself slipping towards an old spending habit. We’re all human and mistakes can happen! Make sure you’ve got some slack built into your plan, so you can quickly bounce back into recovery.
  
  
• Think about a recent financial mistake. Did the world end? It most likely didn’t, and you learned something from the experience. Making a mistake is how you learn!

Remember that money is always more than your net worth; it can also be tied to your self-worth. The most effective financial plan is always one that speaks to who you really are: your authentic values, your habits and behaviours, and your mindset.