New investors nursing heavy losses: six expert tips for beginner investors

Many people started investing during the pandemic, but some are nursing big losses as markets get choppy. Here are expert tips on what to consider when starting out as an investor.

On a gray surface, a calculator, a pencil and a notepad with the inscription - Avoid These Mistakes
(Image credit: Getty images)

While investing can be a great idea to beat inflation and grow your money, many people who began investing during the pandemic are now nursing heavy losses.

A note (opens in new tab) by Morgan Stanley seen by Bloomberg says amateur investors who jumped in when the first lockdown began have given back all their investment gains and are now back where they started in early 2020.

Compared to the rest of the market, amateur investors have suffered worse losses this year, according to Morgan Stanley.

Traders who use complicated products like contracts for differences (CFDs) could be facing even bigger losses. 

The online broker eToro (opens in new tab) says more than three-quarters (78%) of people who trade CFDs on its platform lost money over the past year.

An influx of new investors

Today’s investors tend to be younger, and with a higher proportion of women. Many young people started investing during the pandemic, when they had lots of spare time and an interest in boosting their income.

According to figures from the online trading platform IG (opens in new tab), its average new client age has dropped from 41 in 2017 to 39 in 2021. It has also seen a rise in the number of traders aged 25 to 34.

Chris Beauchamp, chief market analyst at IG, says the average age of a beginner investor will likely fall further, due to the growth of investing and trading apps.

Social media is also playing a big part in getting the next generation into investing. While some social media posts and videos give sound financial advice, others glamorise the idea of investing, with influencers posting pictures of expensive lifestyles that they claim are funded by their investing profits.

Beware of the risks of investing

However, there are no guarantees with investing, and many young investors seem to be unaware of the risks. 

Last year the City regulator the Financial Conduct Authority (opens in new tab) released a report warning young people about the risks of investing. Its research found that many young people said they invested because they “enjoyed the thrill”.

It also found a lack of awareness, with more than 4 in 10 young investors failing to acknowledge that “losing some money” is a key risk. 

Unlike keeping your money in a savings account, your investments can go down in value.

Six investing tips for beginners

Social media posts can make investing look exciting, and seem like a fast track to making big profits. But it’s just as easy to make a loss as it is to make a gain, and if you’re a novice investor that hasn’t done any research, the odds are not exactly stacked in your favour.

If you’re interested in investing, the first thing to do is think about how you would feel if your cash went down in value. Because that’s the reality of investing. You could make more money compared to keeping it in a savings account, but you could also see a £100 investment, for example, become £80 if the markets tumbled.

If you’re still keen on becoming an investor, the next step is making sure you have a decent cash buffer in an easy-access savings account. This is in case of any unexpected expenses, like the boiler breaking down, or your car urgently needs repairs.

Still keen? Here are six tips for first-time investors.

1. Set yourself  goals

Do you have a specific goal in mind, like a deposit for a house or a retirement nest egg? Or are you just looking to grow your savings as much as possible? 

“Working out your investment goal is a good way to start your investing journey and to provide some discipline to stay the course ⁠- especially when stock markets get rocky,” notes Andrey Dobrynin, co-founder and managing director of the trading platform InvestEngine (opens in new tab).

2. Don’t be a fashion victim 

Beware of getting swept up by investment fads and crazes. By the time you’re on board, the gains may have already been made. According to Beauchamp, people sometimes flit from one market to another, looking for the “big move”. He adds: “Sticking with one or two markets and following a consistent investment strategy instead of chopping and changing is usually a sensible approach.” 

Some investment crazes could be a bubble waiting to burst, while others could even be a scam. If you’re interested in crypto, read the latest news on our sister site MoneyWeek (opens in new tab), and keep an eye out for crypto scams too.

3. Do your homework

Investing can feel overwhelming, but there’s loads of information out there to help you get started. MoneyWeek (opens in new tab) has lots of handy guides and articles, exploring different themes and strategies, as well as share tips. You should also be on the guard for investment scams and ponzi schemes.

4. Keep it simple and diversify

If you feel confident enough to choose your own shares, monitor them and work out when to sell them (or buy more), that’s fine. But you can also take the hassle out of investing by buying a diversified low-cost fund like an exchange traded fund (ETF). 

These funds allow you to track the performance of global or national stock markets, or, if you prefer, a bond index or commodity like gold. “Diversifying your investments helps reduce risk and smooth returns. ETFs offer an easy way to diversify; many give you exposure to hundreds of different holdings for a very low fee,” says Dobrynin.

5. Think long-term

With a properly diversified portfolio, the longer you invest for, the more chance you have of making gains and beating cash returns (in other words the interest you’d receive if you kept the money in a savings account instead). 

Aim for at least five years if you can: UK shares have beaten cash in 90% of five-year periods since 1899, according to some long-running research called the Barclays Equity Gilt Study.

6. Investing isn’t for everyone

Investing isn’t the right thing for everyone, perhaps due to personal or financial reasons.. “Sometimes, it can be a worthwhile time investment, but if it isn’t, don’t be disheartened. Leave it a year, and if circumstances have changed, get back into it,” comments Beauchamp.

Ruth Emery is contributing editor at The Money Edit. Ruth is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. Outside of work, she is a mum to two young children, a magistrate and an NHS volunteer.