Six common investing mistakes to avoid in 2024

Whether it's high interest rates, the continued threat of a recession or even a looming general election – investors will have plenty of economic challenges to contend with heading into the new year.

With so much beyond your control in 2024, focus on what you can change.

Here, we take you through six common investing pitfalls and, more importantly, how you can avoid them.

Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice.

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1. Paying too much in fees

When you invest, you'll likely pay a fee to the platform you use plus potentially some trading fees. When you invest in funds, you'll also pay a fee to the fund manager.

In both cases, there's a big gap between the most and least expensive options, and paying more won't guarantee you better returns.

Quite the opposite – high charges means lower returns when markets are rising and higher losses when they're falling.

How charges could affect a £10,000 investment

Active funds, where a person or team picks specific investments, tend to be more expensive than their passive counterparts, which track a specific index of companies or assets, such as the FTSE 100.

Investment platform AJ Bell's Manager versus Machine report found that just 36% of active managers outperformed the equivalent passive funds in 2023. While the very best performers will likely be active funds, in most cases you'll pay more and get back less.

How to avoid it

In our analysis comparing investment platform fees and charges, we found that for a portfolio worth £25,000, you could save £110 each year by switching from the most to the least expensive platform. Essentially, you could pay less to hold the same bunch of investments.

If you find that you’re paying over the odds for your platform, you can transfer your stocks and shares Isa to a new provider without losing any of the Isa’s benefits. See our guide on stocks and shares Isa transfers.

If you hold expensive active funds, consider if you might achieve the same aims using cheaper passive funds.

• Find out more: best investment platforms 2023.

2. Investing aimlessly

The way you invest should be significantly influenced by what you hope to get from investing.

If, for example, you’re looking for a bit of additional income in your retirement, it wouldn’t make any sense to invest in gold as it's an investment that can’t pay you any dividends.

How to avoid it

You can ask yourself some questions to understand what it is you want to get from your investments:

• Are you looking to get a regular income?
• Are you saving for something in particular, such as a house deposit?
• When will you need to access the money you’ve put away to invest?
• How involved do you want to be in picking and monitoring your investments?

Don't get swept up in any excitement and hype around assets that conflict with your answers to these questions. 

For instance, if you need to access your money in around five years' time, you'll know to avoid an investment that says it is most suitable for those investing for ten or more years.

And if you're saving for an event that's less than five years away, you're better off with a top-paying savings account.

• Find out more: a beginner's guide to investing

3. Putting all your eggs in one basket

If you invest only in, for example, the FTSE 100, your portfolio will be highly vulnerable to the impact of high interest rates and risk of recession in 2024.

This is also true of asset types. If you invest only in shares of companies, you’ll be more vulnerable to something such as a recession that impacts consumer spending. 

How to avoid it

If you diversify your portfolio, say you also invest in emerging markets or Japan and the US, the impact of a UK recession on your investments would be softened. 

Similarly, if you also invest in bonds, for example, as well as stocks you’ll have some security against these shocks as the value of bonds and shares move in opposite directions. 

So, more often than not, when the stock market falls, the value of bonds increases.

• Find out more: asset allocation and diversification explained.

4. Taking on too much – or too little – risk

Investing is not simply 'a gamble': different types of assets have very different levels of risk and reward.

Cash is the least risky asset – although it will be eroded by inflation – while stocks are more risky with more potential for their value to rise.

How much risk should be determined by your investing aims (see above), but also by your appetite.

This is broadly defined as how far the value of your investments could fall before you sold them. For some people, a 20% fall would be fine, while for others it would cause panic and a hasty and costly sell-off.

How to avoid it

Think about how long you plan to stay invested, as well as your own personal appetite for risk. 

Would you be willing to take slower growth of your investment in exchange for it being safer or would you take on the possibility of greater losses to go for the biggest possible returns?

If you’re not sure, it might be best to speak to a financial adviser or complete one of the many online risk appetite questionnaires.

• Find out more: what is investment risk? 

5. Losing your nerve (or patience)

Even if you have a well-diversified portfolio, your investments are almost guaranteed to dip in value, and some of those dips can be big.

If you sell during a dip, you make those 'on paper' losses very real.

If markets start to rise, you'll not only miss out on your investments recovering, you'll have to pay more to buy back the same investments you once held.

How to avoid it

Always have an emergency or 'rainy day' savings account in place, so you're not forced to sell investments to pay for unexpected bills.

If a market dip occurs, it's often best to hold your nerve as economic conditions may shift rapidly. 

October 2023, for instance, was a dreary month for many stock markets. But in November and December, markets more than recovered.

It's possible, of course, that some of the investments you hold have poor returns because they're bad investments.

If that's the case, regularly reviewing your portfolio (once every six months or so) can help you catch them without making a knee-jerk reaction.

If it’s a fund that’s performing badly, the manager or the investment platform you invested with might put out an explanation. While a company you've invested in directly will address investor concerns in their regular reports and results.

• Find out more: investing directly in shares.

6. Not knowing what you're invested in

To state the obvious, you shouldn't invest in something you don't understand.

Don't buy shares in a company if you don't understand its business model, as you won't know how it compares with its rivals or whether now's a good time to buy.

When it comes to funds, you don't need to understand every company it owns. 

But you should understand how the fund itself works so you know whether it suits your investing aims.

If you're looking to invest sustainably, also look out for 'greenwashing', where fund managers make sustainable claims (and often charge higher fees) that they can't substantiate.

How to avoid it

The best way to find more details about a fund is in the Key Investor Information Document (KIID), sometimes just called the ‘factsheet’. This two-page document will tell you the fund’s objective, how risky it is on a scale of 1-7, how it has performed in the past and its charges.

If you’re investing for income, for example, this document might tell you when to expect payments. For funds marketed as 'sustainable' or 'ethical', the factsheet should explain what it means by this (if it's not obvious, be wary).

For those investing directly in shares, you can learn more about companies by keeping up with news about them – investment platforms will sometimes provide this – or by looking into their annual reports and results.

• Find out more: ethical investing explained.