What not to do. 10 tips for beginner investors that could leave you penniless.

Beginner investors often seek simple recipes for quick riches – buying cryptocurrency, investing in startups, or following "insider" advice from bloggers. At first glance, this seems safe and logical, but in practice, such recommendations often turn into traps that waste time and money.

LIGA.net has compiled common harmful advice for novice investors and explains what not to do to avoid losing money.

Buy shares of the companies whose products you use.

Investors are advised to choose companies based on their personal experience using the products. In other words, if you like the product, then this business is promising and worth investing in.

You have an iPhone – buy Apple shares, you love McDonald's – buy McDonald's shares. In fact, companies that are convenient for people are not always efficient businesses. This is according to Oleksandr Yutysh, financial advisor and founder of the YU.invest project.

"It could be a company that isn't very convenient for you, but which makes great money and whose shares are attractive. Or it could be the opposite – a company that seems attractive, works extremely well, produces cheap products, etc. But the business itself is not very promising, it won't grow," added Oleksandr Yutysh.

Diversification across sectors protects against risks.

Newcomers are advised to raise funds for investments from various sectors – for example, energy, healthcare, and finance. The idea is to reduce risks, but a lack of understanding of the specifics of the sectors reduces the effectiveness of this approach.

"In reality, people are buying sectors that they don't understand at all, because energy is a sector more for active investors. Healthcare is also a rather specific sector that you need to understand," says Oleksandr Yutysh.

He adds that such diversification does not work for newcomers who lack knowledge and experience in each of the sectors.

Cryptocurrency is the path to guaranteed wealth.

Newcomers believe that buying cryptocurrencies will quickly make them millionaires. However, cryptocurrency investor and founder of the first Learn to Earn Global WEB3 university in Ukraine, Mykhailo Patsan, says that cryptocurrency should only be part of a diversified portfolio, not the sole investment.

"Most cryptocurrencies are a high-risk asset that is not backed by real assets. The price is determined by user trust, limited issuance, supply and demand. These aren't very reliable criteria for investing all your capital," says the financial planner. iPlan.ua Larisa Moshkivska.

Investing in real estate is always stable.

Real estate is considered a stable investment that always generates profit. However, at the same time, the low liquidity and the possibility of capital freezing are not taken into account.

It's an understandable instrument that can be physically grasped, and it generates regular passive income. "But the reality in Ukraine is that this investment can freeze capital for years, especially during wartime. There is a risk of a long payback period and low liquidity," explained Larysa Moshkivska.

The annual income from renting out an apartment is usually is the same as approximately 3–5% of its market value, taking into account taxes, downtime, and maintenance costs. If we also consider the costs of repair and furnishing, the real income in percentage terms will be even lower.

Keep your money under your pillow

People are often advised to keep their money in cash, as banks can go bankrupt and markets are always subject to fluctuations. This approach provides a sense of security, but it has significant limitations: money loses its purchasing power due to inflation.

This is especially relevant for those who have experienced the loss of funds and find it difficult to trust financial institutions. "However, even this method has a number of risks, including physical ones: damage, theft, military risks, etc. And the most striking is the slow devaluation," says Larysa Moshkivska.

It's better to create a financial cushion for three to six months, and diversify the remaining funds among different assets. Inflation erodes the purchasing power of cash. This is according to Mykhailo Patsan.

Look for insider information from bloggers.

Many newcomers seek insider tips in private channels on social media.

Following so-called "financial gurus" may seem like an easy way to make money, but in practice it often leads to losses. Fundamental analysis and independent research of assets are much more effective. After all, bloggers often receive money for advertising.

"Learn fundamental analysis, read companies' financial statements, and make your own decisions based on research," advises Mykhailo Patsan.

Start with investing in startups.

The popular belief that startups offer the highest returns leads newcomers to invest in the early stages of business. This approach is high-risk and requires experience and capital.

"Start with ETFs, index funds, and reliable stocks. Venture investing is for experienced investors with a large capital," adds Mykhailo Patsan.

Always buy dollars and gold.

Along with real estate, buying US dollars and gold in Ukraine is often considered one of the most solid investments worth considering. But don't forget about currency inflation.

"Buying currency is a way to preserve funds, but not to increase them. The longer you hold currency in cash, the more it will depreciate," adds Larysa Moshkivska.

Regarding gold, it's a tool for capital preservation, not for capital growth. Moshkivska says that gold as an asset does not generate consistent profit, for example, compared to shares of global companies. Therefore, in an investment strategy, it is worth adhering to diversification, distributing capital among income-generating and protective assets.

Immediately sell the products that are not generating revenue.

Many newcomers believe that if a portfolio doesn't generate profits in the short term, the strategy isn't working. This approach ignores the long-term nature of investing.

"Invest with a horizon of at least three to five years. Short-term fluctuations are the norm, not a reason for panic," says Mykhailo Patsan.

He added that market crashes are an opportunity to buy quality assets at a discount. It's important to stick to your strategy and not make emotional decisions.

We need to buy more cheap stocks.

Another tip: look at low P/E (price-to-earnings) and P/S (price-to-sales) ratios and buy such stocks. However, often a low valuation signals a weak business with no prospects.

"This is called a value trap. Investors see it, think, I'll buy a cheap company and be like Warren Buffett, and then it turns out that it falls another 20%, 30%, 50%," explained Oleksandr Yutysh.

Investors surveyed say: although this advice may sound logical, without understanding the business it turns into a trap for beginners. Therefore, an investment hypothesis and at least basic analysis are always needed, otherwise you are just putting together a random portfolio that doesn't work.