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1 in 2 investors started with shares: Should you join them?

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Shares remain the most popular product to invest in as Australians increase their risk tolerance.

Australian investors are setting their sights on long-term wealth through the use of shares. However, they are engaging in riskier assets without even knowing it, a new industry report shows.

The report by the Australian Securities and Investments Commission (ASIC) shows that on average, investment portfolios tended to make up around half of investors' total wealth, with 73% of investors owning shares.

A further 52% of Aussie investors began their investment journey with shares.

ASIC's chair Joe Longo said, "It's encouraging to see more people, particularly younger investors, engaging in the market."

The chair further points out that investors are in it for the right reasons.

"A third of all surveyed investors said they are 'in it for the long-term'," Longo said.

FOMO, neighbours tip and social media still dominate investors' decision

Despite the majority of investors being in it for the right reasons, ASIC warns Aussies not to invest for the wrong reasons.

Its report showed that around 50% could be doing so, answering ASIC's survey saying they invest because they "don't want to miss out".

At the same time, 41% also use digital channels and social media platforms to source information on investing.

But RMIT's economics associate professor Angel Zhong opines that it's important to check the source before social trading.

"Social trading also improves financial knowledge, whereby investors learn from each other."

"But social trading exposes novice investors to dodgy advice online and may prompt them to herd in trading, which has adverse impacts on their financial wellbeing and the stability of financial markets," she told Finder.

"The GameStop saga is a vivid example."

Worse still, separate research by Finder shows 1 in 10 admit they have traded while drunk.

"The effortless ability to trade nowadays is partly responsible for individuals investing and doing other tasks simultaneously," Finder's investment's editor Kylie Purcell said.

"That being said, if you're intoxicated enough to not be able to hop in the driver seat of a car, you definitely should steer clear of share trading."

Investors also need to understand risk

The corporate regulator also reminds investors to know the risks of assets they are buying prior to purchasing them.

But the report highlights a worrying sign that almost half of Aussies do not properly understand them.

On its findings, 1 in 2 Aussies own crypto products but only 2 in 10 of these investors actually think they are risky.

Longo notes a disconnect as investors are unaware they are buying riskier assets.

"We are concerned about the number of people surveyed who reported investing in unregulated, volatile crypto asset products. This research does highlight during this particular point in time the appeal of crypto assets to the market," he explains.

Zhong said that this is consistent with behavioural finance. Research shows retail investors often take more risk than they think.

"This behaviour highlights that investors actually regard crypto investing as a risky behaviour, which substantially increases the frequency of checking their investment," Zhong said.

This will impact overall returns.

"The disconnect between knowledge of risk and actual behaviour is concerning and will have an adverse impact on long-term wealth creation."

Tips to avoid common investing mistakes

If you're an investor who is making these mistakes, then you're not alone. It's common among retail investors.

As such, Zhong gives a few handy hints for investors:

  1. Have a trading and financial plan before your investment and make sure that you stick with it.
  2. Bear in mind attribution bias when FOMO comes to mind. People attribute success to skill while failure is just bad luck.
  3. Remember that investors tend to tell others they succeed but become quiet if they fall.
  4. Investments that suit your friends or social network may not be right for you.

Looking for a low-cost online broker to invest in the stock market? Compare share trading platforms to start investing in stocks and ETFs.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.

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