Today we have a guest post by Simon from Financial Expert, a blog that offers free learning experiences which combine articles, interactive experiences, and assessments. Today he talks about some of the mistakes he personally made in investing and some of the lessons he learned along his way to becoming a smarter investor in the 21st century!
While the post title implies that my failures only number three, I feel it is only fair to admit that I have comfortably exceeded this number over my decade of investing!
Here are three mistakes which I feel hold broader lessons for all of us to reflect upon.
1. I believed that complexity was the key to an excellent portfolio
I loved investing so passionately when I first began, that I immersed myself in the topic at every opportunity. I read magazines, blogs, newspapers to satisfy my hunger for knowledge.
However, the fear of missing out led me to invest in too many types of investments. You could say that I kept my eggs in too many baskets. The variety of platforms and investments sounded like diversification, but this came at a steep price – the number and size of trading and accounts fees I had to pay each month became truly counterproductive.
The lesson to be drawn is that while complexity might be manageable in a large scale professional portfolio, this doesn’t mean they work for us; the amateur investor. We need a portfolio that carries a low annual cost and provides an efficient way for us to drip-feed each month. Small investors need every pound and dollar to be working as hard as possible. It’s very likely that a simple and basic portfolio will achieve this better than one with 7 different asset classes!
2. I kept knowledge to myself
My parents sought financial advice from a qualified advisor about eight years ago. Talking about money in the UK (and elsewhere) is a taboo—it isn’t common. Respecting this, I didn’t ‘pry’ into any details at the time.
Only after they had signed on the dotted line did I come to learn that the promoted fund carried an eye-watering level of charges. These included an upfront fee of 5% and an annual management charge of 2.5%.
If I knew earlier that the fund would deduct 7.5% in the first year, I would have stepped in to vehemently warn my parents against investing. Because I didn’t have that conversation, I didn’t have that opportunity.
I think it is each individual’s decision to decide whether to keep details of their precise wealth and savings private, however, this should not dampen discussion about investment topics in general. The more we talk and discuss, the better educated we will all become about investing.
Real estate and home prices have become a dinner party conversation staple. But where are the discussions about the stock market, or whether bonds have any merit?
3. I thought I knew what would come next
After holding shares for several years, I reached a tipping point where I began to feel fearful about a recession. On the basis that the stock market had enjoyed three very strong years, I reviewed the price graphs and began to anticipate a sudden plunge.
The news that I read confirmed my bias, and I consequently sold my shareholdings. In the weeks following, the market continued its merry upward rise and did not later fall back. I had made the wrong call and my portfolio had missed out on further growth as a result.
The lesson I had learned the hard way, was that I didn’t have a gift that allowed me to foresee the next swing. After further research in the years since, I have discovered that virtually nobody does—not even the professionals. Financial institutions have repeatedly measured the performance of professionally managed funds and have concluded that more times than not, these fail to beat the market.
In a news interview I recently watched with the world’s most famous investor Warren Buffet, he almost laughed off a question about whether the U.S. economy would continue to expand in 2019. No one has a crystal ball to know exactly what will happen when you invest. There are risks at any specific moment in time.
If Warren Buffet has given up trying to make short term predictions after 60 years in the game, we should too!
The important thing to learn is that investing is a long game to play and to learn quickly from your mistakes when you play it.
What mistakes have you made while learning how to invest? Have you changed your strategy and how successful have you been?