7 Top Investing Mistakes New Investors Should Avoid in Today’s Volatile Market

India witnessed 42 lakh new demat accounts in June 2024, which increased the number of demat accounts to 16.2 crore. The average monthly rate of the addition of the demat account was 34 lakh in FY25 so far.  By the numbers, it is clear that more people are inclined towards taking part in the stock market, and it is now more than ever important to get familiar with the top investing mistakes. Understanding the pitfalls will help you as an investor to avoid these and navigate the markets better, along with using the best online trading app in India. 

So, whether the stock market keeps going down or geopolitical tensions are rising, you will be aware of the probable investing mistakes to avoid. 

What are some of the top investing mistakes in the stock market?

Here are some top investing mistakes to stay aware of while investing in stocks. Let’s take a look. 

Lack of research without specific goals 

Whether you are investing short-term or long-term, the first thing you need to consider while participating in the stock market is doing proper research. New investors usually make the mistake of investing in a stock without proper knowledge or conducting research like fundamental analysis. 

Make sure you analyse the financial health of the company you want to invest in, its future growth potential, the industry, and current market trends. This step is often overlooked when your clear goals are not set. 

Overlooking your risk appetite 

As an investor, when dealing in the stock market, you need to have a clear understanding of your risk appetite. Depending on your financial situation, goals, and needs, you need to determine how much risk you are willing to take when investing in the stock market. The equity market is highly volatile, and if you invest more than the loss you can make, the chances are you might not make the most of the stock market. Make sure you have determined your risk tolerance properly and made your investments accordingly. 

Investing with the mindset of a trader

For a beginner, the terms investor and trader might sound similar, but they are not the same and approach the market differently. A trader analyses the market based on short-term charts to make a trading decision. These charts can be daily or even based on minutes (1 minute, 5 minutes, etc.). They buy stock only to sell it after a short period of time in order to make a profit. 

For traders, market volatility is a crucial aspect to consider in every decision they make, as they hold the position for a very short term. Investors, on the other hand, hold a position for years (a minimum of 3 years) to benefit from the compounding effect and generate wealth over the years. When you are an investor, make sure to not follow a trader’s mindset. This means short-term market volatility should not affect your investing decisions. 

Having personal bias

For new investors, emotions can hinder their decisions when investing in the stock market. Personal bias can be an influence on your investing journey. A common example would be the tendency of many beginners to buy the stocks of companies they are aware of or prefer. This might not be the ideal choice, as businesses you are familiar with or prefer might not necessarily be the best choices for investments given your risk tolerance and financial objectives.

To avoid personal bias, focus on researching and analysing financial data of companies you’re interested in. This approach can help you make more objective and informed investment decisions.

Depending only on stock recommendations

While stock recommendations from experts or financial advisors can be valuable, relying solely on them without conducting your own research is a common pitfall. These recommendations may not always align with your personal financial goals or risk tolerance. Moreover, the stock market is dynamic, and situations can change rapidly after a recommendation is made.

Instead of blindly following recommendations, use them as a starting point for your own research. Analyse the company’s financials, industry trends, and recent news before making an investment decision. This approach will help you make more informed choices and understand the rationale behind your investments.

Lack of diversification 

One of the most crucial principles in investing is diversification, yet many new investors overlook its importance. Putting all your eggs in one basket—whether it’s a single stock, sector, or even asset class—can expose you to unnecessary risk. If that particular investment performs poorly, it could significantly impact your entire portfolio. 

To mitigate this risk, spread your investments across different sectors, company sizes, and even geographical regions. Consider including a mix of stocks, bonds, and other asset classes based on your risk profile and investment goals. Diversification doesn’t guarantee profits or protect against losses, but it can help manage risk and potentially improve your overall returns in the long run.

Ignoring the importance of patience

In the age of instant gratification, many new investors expect quick returns from the stock market. This impatience can lead to frequent trading, attempting to time the market, or chasing after the latest investment trends. However, successful investing often requires a long-term perspective and the patience to ride out market fluctuations.

Bottom line

Navigating the stock market can be challenging, especially for new investors. By being aware of these top investing mistakes and taking steps to avoid them, you can improve your chances of success in the stock market.

For those looking to start their investment journey, choosing the right platform is crucial. The best online trading app in India can provide you with the tools and resources needed to make informed decisions. 

Dhanush, powered by Ashika Group, helps you navigate volatile markets and avoid common investing pitfalls. Our user-friendly platform offers comprehensive research tools, real-time market data, and expert insights to support informed decision-making. Whether you’re new to investing or an experienced trader, Dhanush provides the resources you need to invest with confidence.

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