For example, mutual fund annual fees are expressed as expense ratios, which represent what it costs a company to operate the fund. They vary by the type of fund, but on average, the expense ratio for an actively managed stock mutual fund is approximately 1.43 percent per year, according to the Investment Company Institute.
It's important for new investors to understand how fees can affect your their returns over time. "For example, if you invested $10,000 in a product with a 10 percent annual return before expenses and annual operating expenses of 1.5 percent, after 20 years you would have about $49,725," according to the U.S. Security and Exchange Commission's website. "But if the investment had expenses of 0.5 percent, you would end up with $60,858 – an 18 percent difference."
When it comes to fees, it pays to do extra research and ask questions. If you are working with an advisor, some of your inquiries could include: "What are the total fees required to purchase, maintain, and sell this investment?" "What are the ongoing fees to manage my account?" Or for a mutual fund, "How much will I be charged to buy or sell shares?" You can also check the expense ratio of a mutual fund by searching its prospectus.
Make your portfolio your own. Some investors tend to seek immediate gratification and follow trends. However, according to Guy Weinhold, a financial advisor for Edward Jones, the best approach for you and your portfolio will match your individual goals and build slowly over time.
Avoiding a "one size fits all" investing approach is important because "no two people have the exact same financial situation," he says.
Taking advice from fellow investors can be helpful, but proceed with caution. "A lot of people tend to directly follow advice from friends and it often doesn't work out so well," Mervine says. "You may be given an investment or given a tip, but until you take the time to understand why you are in an investment and learn what the investment is likely to do for you, you won't learn as much if someone told you something and you just blindly acted."
Don't let emotions get the best of you or your money. "The number one problem I think all investors face at some point is of an emotional component," Weinhold says. "When you let your emotions brew and make bad decisions based on the news or crisis of the day instead of focusing on your goals, that's when you can find yourself in trouble."
Combat this instinct by focusing on long-term plans. Creating a personal checklist or working with an advisor can help you avoid making knee-jerk decisions based on fear or greed. "New investors often want to see growth right away and fail to invest for the long run," Mervine says. "Investors will be better off to wait it out, be patient and educate themselves on all the ways that they can diversify."