Most people arrive at investing with the same mix of hope and nerves. You have some money set aside, you know that leaving it in a current account for thirty years is unlikely to do you any favours, and you would like to get on with it. That instinct is right. The trouble is that the first year or two is when the avoidable mistakes happen — the ones that cost real money without teaching you anything useful. Here are five that come up again and again, and how to sidestep them.

Chasing whatever has just gone up

It is human nature. A fund posts strong returns for two years, it starts appearing in articles, a colleague mentions it in the kitchen, and suddenly it feels like the obvious home for your money. The problem is that you are buying the past. Investments that have risen sharply are not automatically bad, but their price today reflects a great deal of optimism — and often a little too much of it.

Concentration is the other half of that problem. If your entire first year's contribution goes into one sector fund or one company, your outcome depends on a single narrow thing going right. A global tracker spread across thousands of companies will never be exciting, and that is rather the point.

• Write down your reason for buying before you place the order. "It went up a lot last year" is not a reason.
• Ask whether you would still want it if it had fallen 20% over the past twelve months. If the answer is no, you are buying momentum rather than value.
• Cap the fun. Plenty of investors keep a small slice — money they can genuinely afford to lose — for a punt or two, and leave the rest in something dull and diversified.

Ignoring fees and charges

Charges are the quiet part of investing. They never appear in a headline return and they rarely feel urgent, but they come out of your money every single year. One percentage point a year sounds trivial. Compounded over twenty or thirty years, it is anything but.

New investors often compare funds on performance alone and pick last year's winner. A better habit is to work out the total cost of owning the thing.

1. The platform fee, usually a percentage of your balance and sometimes capped.
2. The fund's ongoing charge, which covers the manager's costs.
3. Dealing charges every time you buy or sell.
4. Foreign exchange charges if you hold shares listed overseas.
5. Exit or transfer fees if you later move to another provider.

Add those up and you have a number worth knowing. Then reduce it where you can: a low-cost global tracker held on a cheap platform often costs a fraction of an actively managed fund bought through a more expensive service. Trade less often, too. A monthly direct debit does most of the work without you paying a dealing charge every time you have a thought.

None of this means cheap is always best. Paying for regulated advice can be worth every penny when your circumstances are complicated. Just know what you are paying and what you are getting for it.

Panic selling when markets fall

Markets fall. Sometimes they drop 10% in a matter of weeks, sometimes more. Falls of that size are a normal feature of investing, not evidence that something has broken.

Selling in a panic does two damaging things at once. It turns a temporary fall into a permanent loss, and it hands you a second, harder decision: when to get back in. Most people wait until they feel safe again, which usually means waiting until prices have recovered. They miss the rebound and end up worse off than if they had done nothing.

• Hold an emergency fund. Three to six months of essential spending in cash is the single best protection against selling at the wrong moment, because you are not forced to raise money from your investments.
• Automate contributions. A monthly direct debit buys more units when prices are low and fewer when they are high, with no decisions required from you.
• Write your plan in advance. Something as simple as: "If my portfolio falls 30%, I will keep contributing and change nothing." Then, when it happens, read your own note.
• Check less often. If a daily glance makes you twitchy, look monthly or quarterly instead.

Investing money you will need soon

Shares are a long-term home for money. Five years is a reasonable minimum holding period; ten is more comfortable. If you are saving towards a house deposit you expect to use in two years, a wedding, or next year's tax bill, a stocks and shares ISA is the wrong place for that cash.

The risk is not theoretical. A sharp fall the month before you need the money leaves you with two bad options: sell at a loss, or delay your plans. Money you need within the next few years belongs in cash or something similarly stable, even when the interest on offer is unexciting.

One more version of this mistake: investing borrowed money. Using a credit card, an overdraft or a loan to fund a portfolio adds a guaranteed cost to an uncertain return. Clear expensive debt first, then invest what is genuinely spare.

Leaving tax wrappers and admin until later

The UK offers investors some genuinely useful shelters, and ignoring them is one of the more expensive oversights available.

• A stocks and shares ISA. Returns are free of UK income tax and capital gains tax, and the annual allowance is generous. Check the current figure on GOV.UK each tax year before you plan around it.
• A pension. Contributions usually attract tax relief, and if you are employed your employer typically adds more on top. The trade-off is that the money is locked away until you reach the age rules allow.
• A Lifetime ISA if you are saving for a first home or later life. It comes with a government bonus and strict conditions, so read the rules carefully before committing.

Then there is the paperwork you can finish in an afternoon: name a beneficiary on your pension, keep a simple note of what you hold and why, and check you are not paying for the same exposure in three different accounts.

Keep it boring and keep going

Nothing here requires cleverness. A diversified, low-cost portfolio held inside a tax-efficient account, funded by a standing order, and left alone through the bad months will beat most attempts to time the market. Two habits matter more than any tip: know what you own and why, and review your plan once a year rather than once a day.

If your situation is complicated — a business, an inheritance, an unusual pension arrangement, or a sum of money large enough to change your plans — pay for regulated financial advice. It is money spent avoiding a much bigger mistake. And keep in mind the basic rule that never changes: investments can fall as well as rise, and you can get back less than you put in.

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