← News · 29 January 2026

5 Common Mistakes Made by DIY Investors

In recent years, thanks to easy access to information, trading apps, and social media influencers, also known as “finfluencers,” there has been a noticeable rise in novice DIY investors being lured into high-risk, often speculative, get-rich-quick schemes. These can seriously damage long‐term financial well-being. Below are five mistakes I frequently observe, along with their causes, the harm they cause, and how to avoid them.

Mistake 1: DIY Investors Chasing Hype & Speculative Trends Without Understanding Risk

What it is: Buying into investments because they are “hot” (e.g. trending cryptocurrency coins, meme stocks, new tech IPOs), often with little knowledge of their fundamentals, no understanding of volatility or downside risk, or because someone on social media promises big gains.

Why it occurs:

• Fear of missing out (FOMO), especially when friends or online peers appear to make fast money.
• Social media, influencers, and flashy marketing that highlight winners but almost never show losers.
• Low financial literacy; many beginners may not grasp that high return promises almost always imply high risk.
• Easy access: trading apps, crypto platforms, and global markets make entry pretty simple.

Consequences:

• Loss of capital: speculative assets can collapse rapidly.
• Emotional stress and "chasing losses" behaviour (trying to recover quickly by doubling down, etc.).
• Opportunity cost: money tied up in speculative bets could have grown more steadily elsewhere.
• Distortion of risk preferences: believing risk = reward always, underestimating downside.

Evidence from Australia & elsewhere:

• A recent ASIC report (Retail Investor Research, Rep. 735) found many investors hold significant portions of their wealth in volatile products (cryptocurrencies, shares) and check them very often. (download.asic.gov.au)
• Morningstar Australia has observed young investors influenced by social media trying to build wealth quickly—in ways contrary to sound principles. (Morningstar)
• “Trading from Home” research in Australia showed a ~66% surge in trading volume during early COVID lockdowns, driven by retail investors; some of this appears motivated by speculative or quick‐gain hopes. (RMIT University)

Mistake 2: Overconfidence, Poor Diversification, and Trying to Time the Market

What it is: Belief that one can pick winners, predict market cycles, or “time” entry/exit, rather than sticking to diversified, longer‐term strategies. Also putting too much in one asset or sector (e.g. all crypto, all one stock, etc).

Why it occurs:

• Overestimation of one's own knowledge or skill.
• Influence of stories of outlier successes (which are rare).
• Biased thinking: anchoring on past price, believing past growth will continue.
• Social media amplifying speculative narratives.

Consequences:

• Big losses if the trend reverses (timing badly).
• High volatility in portfolio value; doing badly in bear markets.
• Greater likelihood of making emotional, impulsive decisions.
• Poor long‐term returns relative to more moderate but diversified portfolios.

Evidence:

• ASIC research shows newer investors tend to hold smaller portfolios, but more heavily weight volatile kinds of holdings and check them frequently. (download.asic.gov.au)
• Dimensional (Australia) list of common mistakes includes trying to time the market, focusing on headlines, chasing past performance. (dimensional.com)

Mistake 3: Neglecting Costs, Fees, and True Costs of Investing

What it is: Not accounting for brokerage fees, fund expense ratios, tax, spreads, slippage in trades, commissions. Underestimating how much these eat into returns.

Why it occurs:

• Fees often hidden or not well explained.
• Beginners may focus only on potential gains and ignore the “friction” in making them.
• Some platforms advertise “zero commissions” but there may still be other fees (currency conversion, withdrawal, etc.).

Consequences:

• Reduced net returns over time. Even small percentage differences compound.
• The profitability of certain trade strategies or speculative bets deteriorates once costs are included.
• More risk is required to get same net gain, pushing people toward riskier assets.

Evidence:

• Morningstar’s common mistakes include “ignoring fees” as a big issue. (Morningstar)
• ASIC report: many investors over‐estimate portfolio returns, and may underestimate the drag from frequent trading and costs, especially in volatile or speculative holdings. (Implied through observations about holdings, checking frequency, etc.) (download.asic.gov.au)

Mistake 4: Relying on Poor or Incomplete Research, Being Misled by Misinformation

What it is: Relying excessively on social media posts, influencers, hearsay, or “hot tips” rather than doing objective analysis. Not verifying credentials, or ignoring disclosures about risk or conflicts of interest.

Why it occurs:

• Credibility perceived in “ordinary people” who claim success.
• It’s easier/cheaper/faster than deep research.
• Confirmation bias: people tend to believe information aligning with what they want to hear.
• Many lack critical skills (e.g. how to read financial statements, assess valuation, risk factors).

Consequences:

• Falling for scams or pyramid/ponzi schemes.
• Investing in overvalued assets.
• Being exposed to undisclosed risks (e.g. lack of regulation, poor corporate governance).
• Loss of money; erosion of trust; sometimes legal risk.

Evidence:

• IOSCO’s recent “Finfluencers” report warns about misleading recommendations, claims of guaranteed success, high returns with little risk, etc. (IOSCO)
• MoneySmart (Australian government) warns that get‐rich‐quick schemes often use celebrity/influencer endorsement, hype, claims that double money quickly, etc. (Moneysmart)

Mistake 5: Neglecting Long‐Term Goals, and Failing to Align Investments With Financial Plan

What it is: Investing ad hoc, swapping assets based on trends, not keeping a long‐term strategy; failing to think about how investments fit with retirement, superannuation, tax, risk tolerance, time horizon.

Why it occurs:

• Impatience; desire for fast results.
• Underestimating how compounding works: small steady growth over many years often beats quick speculative wins.
• Lack of planning, or not writing down goals.
• Emotional reactions to market movements (selling low, buying high, reacting to headlines).

Consequences:

• Missing out on growth potential because investments are too conservative or mis‐allocated.
• Risk of needing to liquidate investments at bad times due to cash flow crunch.
• Increased tax inefficiency, poor superannuation outcomes.
• Not being able to meet big long‐term goals: retirement, property purchase, education, etc.

Evidence:

• Morningstar’s “20 common investing mistakes” highlights failing to build a plan and write down reasons for buy/sell decisions. (Morningstar)
• ASIC retail investor survey: many newer investors have smaller portfolios, possibly because of lack of long run accumulation behaviour. (download.asic.gov.au)

The Role of Get-Rich-Quick Schemes, Social Media and the Information Age

These mistakes are exacerbated in today’s digital, social‐media‐driven environment. Some notes:

• Hype cycles are faster: stories of outsized returns go viral, lure many in before the risk is understood.
• Influencers and “finfluencers” often promote high risk or speculative assets, maybe with sponsorship, affiliate income, or minimal disclosure of conflicts. IOSCO’s report shows misleading content, lack of transparency, unrealistic promises are widespread. (IOSCO)
• Trading platforms / apps making access easy (low barrier, easy UI), so more people trade frequently; this raises transaction cost, risk of poor timing, overtrading. E.g. the jump in trading during COVID in Australia. (RMIT University)
• Scams: get‐rich‐quick schemes, pyramid or Ponzi structures, fake investment opportunities proliferate online. Governments have repeatedly warned about offers promising very high returns in short time. (Moneysmart)

Falling for these can have long‐term negative effects:

• Permanent loss of capital (when speculative or fraudulent schemes collapse).
• Erosion of trust, maybe pushing someone away from investing altogether.
• Poor starting habits: overtrading, ignoring risk, chasing short term, etc., which compound into lower long term returns.
• Possible legal or tax fallout; getting involved with unlicensed schemes can bring regulatory risk.

Tips for Avoiding These DIY Investor Pitfalls

Here are practical steps to avoid the mistakes above:

1. Set Clear Goals and a Plan
   • Define what you are investing for (e.g. retirement, property, passive income, etc.), time horizon, how much risk you can tolerate.
   • Write it down: what kinds of assets, what portions, when you plan to adjust.
   • Revisit the plan periodically (e.g. yearly) especially when life circumstances change.
2. Do Proper Research
   • When considering an investment, seek out credible, independent sources. Read company reports, valuation metrics, understand sector/industry risks.
   • For speculative assets, check volatility history, regulatory status, liquidity.
   • If someone (or some influencer) recommends an opportunity, check disclosures, whether they are licensed (in Australia, see ASIC registers).
3. Beware of Promises That Sound Too Good
   • High returns + low risk = warning sign.
   • Be especially wary of urgency (limited time only), claims of guarantee, or stories of huge returns with little effort.
   • Verify if the product provider is regulated.
4. Diversify and Avoid Overconcentration
   • Don’t put a large portion of your wealth in one speculative bet.
   • Spread across asset classes: equities, fixed income, property, maybe alternative assets depending on your risk tolerance.
   • Diversification reduces the impact of any given bad bet.
5. Understand Costs & Be Realistic About Returns
   • When investing, always look at net returns after fees, taxes, commissions.
   • Be realistic: steady return over many years often superior to volatile spikes followed by crashes.
   • Use calculators, or work with a financial adviser to model different scenarios (bull market, bear market).
6. Check Credentials & Regulation
   • Ensure any adviser or company offering an investment is licensed under Australian law (ASIC’s registers).
   • For complex or unusual investments, seek a professional opinion (financial adviser, accountant).
   • Be particularly cautious with unlisted or overseas schemes that may escape local regulation.
7. Maintain an Emergency Buffer / Cash Flow Plan
   • Avoid investing money you might need in the short term.
   • Keep enough liquidity to handle emergencies, downturns.
   • Ensure you don’t have to sell at a loss because of cash pressure.

How These Mistakes Impact Long-Term Goals

To understand the gravity, consider how these errors reduce your ability to meet goals like retiring comfortably, buying a home, or funding children’s education:

• Compound effects: Errors early in an investor's life (e.g. high fees, speculative losses, chasing trends) reduce the base capital that could grow compounding over decades. This difference can be huge.
• Behavioural erosion: Making losses or being misled can lead to loss of confidence, possibly pulling out of markets altogether or becoming overly risk-averse.
• Costs of recovery: Rebuilding after major losses takes time. If someone loses 50%, they need to earn 100% to get back to where they started.
• Tax and legal costs: If you engage in unlicensed investments, or in schemes that are later found fraudulent, you may lose money, pay penalties or legal costs.
• Missed opportunities: Money bound up in speculative bets might have instead been invested more solidly (e.g., broad market funds, superannuation), growing with less risk.

Concrete Examples & Data

• ASIC’s Retail Investor Research (Rep 735, 2022) found that new investors are more likely to have smaller portfolios and more likely to hold volatile assets like crypto in large proportions; also that many check their investments at least weekly, crypto owners daily. (download.asic.gov.au)
• Trading‐from‐Home surge during COVID-19 in Australia: trading volumes rose ~66% among Australians in the first wave, driven largely by retail investors. Some of this activity was speculative in nature. (RMIT University)
• IOSCO’s Finfluencers report warns of misleading content by influencers, including unrealistic promises, lack of transparency and risk disclosure. (IOSCO)
• MoneySmart’s warnings about get-rich-quick schemes: flashy ads, promises of quick returns, hype around trending topics; suggestions to verify licensing, seek advice. (Moneysmart)

Avoidance Strategy: A Checklist

Here’s a checklist (you may download and print/use) to help avoid these pitfalls:

Summary

If you're a beginner investor in Australia, it’s natural to be attracted to quick wins—especially with everything you see online. But history, research, and experience show that the most reliable path toward building wealth is steady, informed, diversified, and aligned with your goals. Mistakes like chasing hype, overconfidence, ignoring costs, trusting unverified sources, or lacking a plan can all erode your capital and derail long‐term financial wellbeing. The digital age makes the temptations more vivid, but also gives you more tools to avoid the pitfalls—if you use them wisely.

References

1. ASIC (2022), Retail Investor Research Report 735. (download.asic.gov.au)
2. Morningstar Australia, “Young & Invested: Can You Get Rich Quick?” (Morningstar)
3. Morningstar Australia, “20 common investing mistakes.” (Morningstar)
4. RMIT‐ACUMEN, “Trading from home: the unprecedented surge in trading volume during the COVID-19 pandemic.” (RMIT University)
5. IOSCO, Finfluencers Final Report. (IOSCO)
6. MoneySmart (Australia), “Investment warnings” (get rich quick schemes etc.). (Moneysmart)
7. Dimensional Australia, “3 Common Investing Mistakes.” (dimensional.com)