Chancellor Rachel Reeves wants more people to invest. Her latest Budget did exactly that by cutting the cash Isa allowance while leaving the stocks and shares Isa untouched.
It’s easy to see why investing is in the spotlight. Analysis from IG shows that, since 1999, stock market investors have earned seven times the real return of cash savers, after accounting for inflation.
I’ve spent years writing about investing, and I’ve seen the same slip-ups catch people out. Whether you’re just getting started or you already invest regularly, here are six mistakes everyone should avoid.
Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice.
1. Failing to diversify
It can be tempting to go all in on one or two companies that are currently overperforming, but this can quickly backfire if they start to falter.
You can limit the impact of a single investment doing badly by spreading your portfolio between different assets such as shares, bonds and commodities.
Different assets behave in different ways and typically carry different levels of risk. So the right asset allocation for you will depend on your goals and tolerance for risk.
For example, if you want to take out the money in the next few years and are keen to minimise potential losses, you might wish to hold a smaller proportion of shares, as these carry a greater level of risk.
It’s a good idea to invest in different sectors and industries, preferably those that aren’t highly correlated to each other, such as banking and consumer goods.
Also try to spread your investments across different regions and countries to reduce the impact of individual stock market movements.
Investing in funds is a simple way to achieve diversification, as these spread your money across multiple companies.
However, it’s still worth checking exactly what a fund is invested in – some global funds can be heavily skewed towards the US, for example, meaning you might be less diversified than you think.
- Find out more: how to balance your investment portfolio
2. Fixating on past performance
‘Past performance doesn’t guarantee future results’, is a familiar disclaimer to investors.
It doesn’t mean to ignore past performance altogether, rather it shouldn’t be relied on when deciding where to invest.
One of the world’s most successful investors, Warren Buffett, cautions against investing in companies whose business models you don’t understand.
Rather than only chasing stocks with strong track records, it’s important to do your research and get a clear picture of exactly what you’re investing in.
For companies, this means checking its current and predicted profits, debt position, share price growth, cash holdings and the price-to-earnings ratio (which measures a company’s share price relative to its earnings).
For funds, be sure to check their stated aim and look at the annual fees, as well as their holdings. Each fund publishes a summary document called a fund factsheet – this is a good place to start. It’s also worth checking the fund’s Key Information Document.
- Find out more: beginner’s guide to investing
3. Investing beyond your risk appetite
The ‘get rich quick’ approach has been the downfall of many investors; without proper advice or guidance on how much risk to take on, investing can start to look a lot more like gambling.
Very high-risk investments should only ever, at most, make up a small proportion of your overall portfolio – the Financial Conduct Authority (FCA) recommends no more than 10% of your total net assets.
Products that fit this category include contracts for difference (CFDs), cryptocurrency and venture capital trusts (VCTs).
According to the FCA, around 80% of customers lose money when investing in CFDs, which involve betting on asset price movements.
Meanwhile, cryptocurrencies are highly volatile and have no real-world value (unlike commodities such as gold), although they can now be purchased through regulated investment platforms via cryptocurrency ‘exchange-traded notes’ (ETNs).
If you’re unsure of the best way to invest, consider seeking professional advice. The average cost of advice over five years for an investment worth £250,000 is £13,375 in Wales, £15,995 in the north of England and Scotland, and £16,250 in the rest of England, according to review site VouchedFor.
- Find out more: how much financial advice costs
4. Trying to time the market
Trying to pick the perfect time to buy or sell is tempting, but it’s nearly impossible to do it right every time – even the professionals often fail.
Market volatility can be particularly uncomfortable for newer investors, but doing nothing is often the best response, rather than panic-selling.
For example, an investor with an average stocks and shares Isa value of £46,000 would be £8,000 better off had they stayed the course after Donald Trump’s tariff announcements in April, compared with an investor who sold their investments, according to investment platform Lightyear.
That’s because while the FTSE 100 fell 11% in the days following ‘Liberation Day’, by mid-September, it was 7% higher.
A good way to minimise the impact of sudden drops in the market is to invest little and often. This means that you’ll be buying investments at different prices on a regular basis, rather than buying at just one price with a lump sum.
Many investment platforms will let you set up a regular monthly payment plan via a standing order with your bank, allowing you to ‘set it and forget it’.
- Find out more: best investment platforms
5. Not reviewing your portfolio often enough
Ignoring your investments can be costly. At least once a year, ask yourself whether your investments still align with your goals and risk appetite.
If you’re unhappy with how an investment is doing or with your level of exposure to a particular sector or region, don’t be afraid to dial down those investments as you see fit.
Most platforms have tools to help you track your investments and will show you how your portfolio is spread across different regions and asset classes. This allows you to easily see if it needs to be rebalanced.
On the other hand, compulsively checking on your investments can lead to stress, tinkering and rash decisions. Half of investors aged under 35 check their digital investment accounts at least once a day, according to research by HSBC.
Plus, if you’re constantly buying and selling assets, you could rack up considerable trading charges.
6. Ignoring fees
As an investor, you’ll have to pay certain fees come rain or shine. What may look like small costs initially can add up to thousands of pounds over the long term.
The cheapest platform will depend on how much money you want to invest – and what you want to invest in.
If you want to invest less than £50,000, look for platforms with a low percentage-based annual fee and no fixed fees. Fixed-fee platforms are usually the cheapest for larger portfolios.
Consider the management fees charged by the individual funds you pick, too. Some are far more expensive than others, but this doesn’t always mean better performance.
Fund fees have a dramatic impact on your returns
Passive funds have ongoing charges – sometimes as low as 0.1% a year. These funds are designed to follow the performance of a market index, such as the FTSE 100.
Actively managed funds are run by portfolio managers who handpick investments. These funds tend to be more expensive, but they aim to outperform the market rather than just track it.
- Find out more: best investment platforms in the UK 2025
