Investing can be one of the best ways to build wealth and realize long-term financial goals, but making incorrect choices could end up costing you dearly.

Acknowledging errors and learning from them are two fundamental components of success in investing. Here, we explore some common investing mistakes beginner investors often make.

1. Buying Shares on Credit

Investment can be an excellent way to grow wealth and meet long-term financial goals, but it’s essential that investors understand some common mistakes that could thwart success and how avoiding them could increase chances of reaching those goals. Avoiding these costly missteps will allow you to make smarter decisions and help achieve greater investment success.

Credit cards should never be used to purchase shares; most reputable brokers require cash payments for transactions. Although some brokerages may provide co-branded cards that allow you to use rewards instead, using credit cards for investments can quickly add up in fees such as transaction charges and interest charges that reduce returns over time.

At times, blindly following investment advice can have dire repercussions. Pouring all your funds into one stock based on advice from friends or the latest fad can wreak havoc with your portfolio and leave you financially bankrupt. Instead, focus on sound strategies like dollar-cost averaging and asset allocation to achieve long-term financial goals.

2. Investing in Bankrupt Companies

As soon as a company declares bankruptcy, investors receive the message that its shares may significantly decrease in value. Some risk-tolerant investors take a gamble on ultra-cheap stocks believing that through bankruptcy reorganization processes they may emerge leaner and stronger with future value that far outstrips depressed share prices.

However, this can be risky: when companies file Chapter 7 bankruptcy they immediately cease operations and sell off assets to pay creditors in accordance with seniority. Investors typically are required by a trustee to exchange their current shares for ones representing less proportionate ownership in the newly reorganized company.

Without prior experience in distressed investing and quality research on these stocks, it would be prudent to steer clear of them. Vulture investors who invest in such shares often do not intend to hold them long term; they can sell them quickly after entering bankruptcy court.

3. Buying Shares on Emotion

One of the biggest mistakes investors make is buying shares based on emotion alone. Investors may become overexcited or fearful during market fluctuations, which could cause them to make poor decisions that damage their portfolios.

When the stock market is on an upswing and there’s positive media coverage of its performance, you might be tempted to invest more. But it’s important to keep in mind that markets are cyclical – should your investments decline when the overall market does?

To avoid emotional investing mistakes, it’s essential that you create a comprehensive investment plan which takes into account your goals, risk tolerance and time horizon. A good strategy for doing so is dollar cost averaging, which enables consistent investments regardless of price fluctuations. Furthermore, setting so-called stop prices that sell securities automatically if prices dip below certain levels may help prevent you from panic selling during a market downturn.

4. Buying Shares Based on Insider Tips

Every investor makes mistakes, but those made when purchasing shares can be particularly costly. From following investment trends too closely or changing it too frequently to neglecting fees and taxes altogether, mistakes like these can devastate returns and prevent you from reaching your investment goals.

CNBC’s Jim Cramer pointed out one common error investors make is following insider tips, he explained. While monitoring insider sales may be worth monitoring, their interpretation can often be hard. When management repurchases shares they had borrowed with the expectation that share prices will drop (known as short selling), short sellers may repurchase those shares to minimize losses and cause a “short squeeze.”

Consider these errors before purchasing shares to avoid making costly errors and ensure your investments align with your long-term financial goals. For more tips on maximizing potential and safeguarding savings, open a free Mintos account today!