The stock market: pitfalls to avoid for new investors

The recent boom in the financial markets has led to a new generation of stock market investors who tend to overestimate their knowledge of the financial markets.

A good year for the CAC 40, which has gained almost 20% since the beginning of the year. The context of euphoria is likely to attract new investors. According to a recent study published by the Financial Markets Authority (AMF), almost 1.5 million new investors took their first steps in the stock market between 2019 and 2023. Among them, there is a high proportion of individual shareholders under the age of 35.

Beware of beginner mistakes

But even if, as Marie-Anne Barbat-Layani, president of the AMF, points out, this new generation of individual investors represents an asset for the Paris stock exchange, the fact remains that it does not always have sufficient reserves. market culture to put all the odds on your side.

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According to another OECD study, almost half of them invest based on information obtained from social networks or from influencers, without turning to, for example, the specialized press. They overestimate their financial knowledge and also tend not to diversify their portfolios enough, with the desire to make a lot of money quickly for most of them, despite a limited perception of risk, OECD experts say.

The stock market remains a long-term investment

However, the stock market remains a long-term investment. Investing in stocks requires accepting a certain amount of risk, with bearish periods often following more tumultuous ones. However, this investment remains among the most profitable in the long term, if you know how to be patient.

In the face of this volatility in the financial markets, the preferred solution is to invest on a regular or planned basis rather than a one-time investment, as you will not necessarily know whether you are buying in a boom or bust period. With this method, you reduce the risk of investing all your capital at the highest levels of the market. To do this, you need to smooth out your entry points by investing the same amount of money regularly.

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Also consider diversification

In the same logic, as indicated by Alexandre Hezez, Strategist of the Richelieu Group, it is also advisable to diversify your investments so as not to put all your eggs in one basket, as they say. In practice, diversification can be done by investing in shares of companies operating in different sectors of activity, but also in different geographical areas (France, Europe, USA, Asia, developing countries, etc.).

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And save cash

Final advice: keep cash to take advantage of potential cheap buys in the event of a stock market correction. Professionals recommend permanently holding an amount representing at least 5% of the total valuation of your portfolio. To avoid any disappointment, remember that any investment in the stock market carries a risk of capital loss and should only be considered over time, due to the volatility inherent in financial markets.

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