Common ETF Mistakes New Investors Make

I remember when I started investing, read a few websites and thought I knew it all… Anyways here are some common mistakes I see. 

Mistake #1: Trying to Time the Market

Waiting for the right moment to invest, or trying to pick the exact bottom of a dip, feels smart in theory. In practice, it usually means money sits in cash for months, or years, while you wait for a signal that never comes clearly enough to act on. As we covered in Dollar Cost Averaging, time in the market consistently beats trying to time it.

Mistake #2: Overthinking the ETF Choice

New investors can spend weeks agonising over which Australian shares ETF to pick, when the actual difference in long term outcome between the major options is tiny. Analysis paralysis is a real cost. Every month spent “still researching” is a month your money wasn’t invested and growing. Pick a sensible, low cost, broad market ETF and get started. You can always refine later.

Mistake #3: Chasing Past Performance

Just because a sector or thematic ETF had a great run last year doesn’t mean it will repeat. Past performance genuinely isn’t a reliable guide to future returns, and thematic ETFs (clean energy, AI, crypto, whatever’s trending) often attract the most new money right after their best run, which is exactly when the risk of a pullback is highest.

Mistake #4: Accidentally Overlapping Your Holdings

Buying multiple Australian shares ETFs all at once feels like diversification, but it’s often just three different tickets to the same show. Many of the popular options hold largely the same group of Australian companies (see our breakdown of Australian and International ETFs). True diversification comes from spreading across different markets and asset classes, not from holding multiple versions of the same thing.

Mistake #5: Ignoring Fees Because They “Seem Small”

A 0.5% difference in annual fees doesn’t sound like much. But compounded over 20 or 30 years, fee differences meaningfully eat into your final balance. It’s one of the few things in investing you can actually control with certainty, so it’s worth paying attention to.

Mistake #6: Panic Selling During a Downturn

Watching your portfolio drop 20% is uncomfortable, no way around it. But selling while it’s down locks in a loss that would otherwise have just been a temporary paper loss. Markets have a long history of recovering over time (more on that in our article on what happens to ETFs during a crash), and selling during a dip turns a temporary setback into a permanent one.

Mistake #7: Checking Your Portfolio Too Often

Constantly refreshing your portfolio balance during work hours doesn’t change your long term returns, it just adds unnecessary stress. Daily and even monthly price movements are mostly noise. Zoom out.

Mistake #8: Forgetting About Tax

Reinvested distributions through a DRP still count as income in the eyes of the ATO, even though you never see the cash. New investors are sometimes caught off guard at tax time by an unexpected tax bill on income they never actually withdrew. Keep your annual tax statements organised as you go.

Mistake #9: Investing Money You’ll Need Soon

ETFs are a long term tool. If you know you’ll need a chunk of that money in the next year or two (a house deposit, a wedding, an upcoming expense), putting it into a volatile, share based ETF is a mismatch. A downturn at the wrong time could force you to sell at a loss right when you need the cash. Short term money belongs somewhere more stable, like a High Interest Savings Account.

Mistake #10: Investing Before You Have an Emergency Fund

If an unexpected expense forces you to sell your ETFs at a bad time just to cover it, you’ve turned a manageable situation into a financial setback. Having a cash buffer set aside before you start investing means market downturns become something you can simply ride out, rather than something that forces your hand.

Summary

None of these mistakes are really about picking the wrong fund. They’re almost all about behaviour: waiting too long, overthinking, chasing trends, reacting emotionally, or not having the right foundations in place first. Avoid these, and you’re already ahead of a huge number of investors.