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Everybody will make some mistakes in his life. There is no way around it. Over the years, I made many investing mistakes.
One thing that is very important with mistakes is that you learn from them. Not only should you not repeat your mistakes. But you should also improve your knowledge after you have made this mistake. You need to understand why this was a mistake and how not to repeat it.
It is crucial to learn from your mistakes. And it is also essential to recognize your mistakes. There is no value in thinking that you cannot make mistakes. And there is no value in ignoring them. I am not very proud of my investing mistakes. But it is better to talk about them than ignore them! And people can learn a lot from the mistakes of other people.
This article discusses my biggest investing mistakes and what I could have done better. It is also the story of how I invested early and left very early. And finally started investing again way too late!
1. Not holding funds
The first of my investing mistakes was not holding funds long enough.
My first attempt at investing was around 2010, when I was in my early twenties. My bank contacted me at the time (Raiffeisen). They offered me a wide choice of funds. At that point, I had zero experience with investing. I did not know what to do and trusted my banker blindly. I decided to invest 4500 CHF in their funds.
For this, I chose three funds, one bond fund and two stock funds. I decided mainly based on past performance. I was lucky enough to select funds with some diversification and interesting stocks. But I had no idea what the Total Expense Ratio (TER) was. One of the funds had a 3% load fee and 1.25% TER. It was a terrible fund. I should have done more research.
The first of my investing mistakes was getting out too quickly. At first, the funds did pretty well, but then the USD dropped a lot and canceled my earnings. After some time, I decided to sell with minimal profit. I tried to cut my losses early. Had I waited a few years, I would have made an excellent result. I sold based on emotional reasons. I should have held my investments. One should always hold investments and never make an investment decision based on emotions.
And obviously, I should not have invested in such expensive funds.
2. Not investing early enough
This one is probably the biggest of my investing mistakes.
After my first attempt at investing, I waited a long time before investing again. In late 2016, I opened a funds account at PostFinance. I do not exactly remember what made me invest at that time. I think my bank advisor suggested it. It means I was out of the market for almost two years.
So, I started investing in PostFinance Fonds 3. Again, I chose without enough research. I chose this one because it was suggested based on my investor profile. This fund has a 0.5% load fee and 1.11% TER. It is, of course, way too expensive, even if PostFinance advertises it as cheap. It is relatively well diversified but is not an index. And it had a too large allocation to bonds for me (65%).
Nevertheless, it is still better than being out of the market. I should have reinvested earlier instead of waiting for so long. Ideally, I should even have invested before my first attempt at 25. But nobody ever suggested it to me before that time. And except for what I learned from some movies and books, I had no idea about the stock market.
3. Ignoring the fees of funds
At some point, I started to learn that the cost of my PostFinance fund was too high. There were so many better options. First, I decided to use other funds offered by PostFinance. They have a few funds with TER below 1%. Also, several funds do not have load fees. So I started investing in these funds. I made a portfolio of 6 funds.
If I remember correctly, I had a global fund, a United States fund, an emerging markets fund, one dividend fund, a bond fund, and a technology fund. It was not a terrible portfolio. But, It was a bit complicated. Later, I learned to simplify my portfolio.
The average TER of my portfolio was better. But it was still way too high. It took me a few more months to learn about cheap funds and Exchange Traded Funds (ETFs). At first, I researched if I could do it on PostFinance. But their trading fees are outrageous.
I recommend you avoid trading on PostFinance. First, I decided to use DEGIRO. But then, I switched to Interactive Brokers once I had enough money to avoid the custody fees. When you do the math correctly, IB is cheaper than DEGIRO.
Then, I started investing mainly in the Vanguard Total World (VT) ETF. I mostly invest in Vanguard funds. From this point, I invested in low-cost funds only. A cheap broker and cheap ETFs made my fees very low.
This mistake taught me that investing fees are very important. They can make a significant difference in the long term.
4. Investing in cryptocurrencies
Another of my investing mistakes was following the crowd and buying into crypto-currencies. I started to buy some Litecoin (LTC) on Coinbase. Then, I invested in Bitcoin (BTC), and Ethereum (ETH) through an Exchange Traded Note (ETN). I was following the crowd and thinking it was dumb to miss the returns.
And, of course, I invested way too late. I bought just five days before the all-time high. Fortunately, I did not invest a lot. I put around 700 EUR in Bitcoin and around 200 EUR in Ethereum.
And then, it crashed. The price went from a high of about 19K USD to a low of less than 7K. It lost more than half of its value in less than two months. I decided to go out of the crypto-currency gambling game. I do not think BTC has real value, only a gambling value. It is not a smart investment.
Also, there is too much volatility for my liking. I could sell my Ethereum early on for about 30 EUR profit. But it was too late for my BTC ETN. In the end, I sold it with almost a 50% loss.
This experience taught me not to gamble my money. Smart investing is not gambling. And cryptocurrencies are a gamble.
5. Investing in a too complicated portfolio
One investing mistake I made was trying to be smarter than other people.
Once I realized that index investing with low-cost funds was how I used it for my portfolio. However, I ended up with a portfolio that was too complicated. I had too many funds. Several funds were not as useful as I thought. And I even chose a fund that was not what I wanted. You can read mistake #8 to find out what it was.
There are many examples of simple portfolios in personal finance blogs. Most of them are using a three-fund portfolio or even a two-fund portfolio. It is not necessarily easy to adapt for non-US investors, but it is doable. My current portfolio only has two funds.
A simple portfolio is easier to manage and rebalance. And it is often more efficient than a “seemingly smart” one. People are not beating the market in the long term. Therefore, there is no point in trying!
6. Investing first, asking for advice second
This investing mistake is directly related to the previous one.
When I decided to invest in my complicated portfolio, I did not check with anybody. After I invested, I asked for comments on the portfolio. And most of the comments agreed that it was too complicated. If I had asked for advice before investing, I would have avoided investing in my complicated portfolio.
It is always a good idea to ask for advice before investing. You can ask for advice on your favorite personal finance blog or on the Bogleheads forum. Ideally, you want several points of view on a decision before making it.
You should always ask for advice if you are not sure about something. I am running a finance blog, yet I still ask for people more knowledgeable than me. Moreover, this can also break a bias in your decisions.
Now, I think I have a much better grasp of how to design an ETF portfolio.
7. Not considering the big picture
In 2018, I decided to add 5% bonds to my investing portfolio. My rationale was to help to rebalance my portfolio and to increase my bond allocation.
However, I did not consider the big picture. I only thought about the bond allocation of my investment portfolio. But I also have bonds in my retirement portfolios. Once I took everything into account, I realized I already had a too large allocation to bonds.
You should always consider the entire net worth when making an allocation decision. Once I had the big picture, I saw I needed more stocks. I ended up selling these two bond funds when reviewing my portfolio. Fortunately, I realized this early enough. However, I wasted time (and some money) that I could have spent doing better things.
8. Buying without enough research
This investing mistake is a bit silly of me.
I purchased Vanguard FTSE Pacific ETF and allocated 5% in my portfolio. My goal was to add more Chinese exposure.
However, this ETF only covers developed Asia, and for some historical reasons, China is still part of the Emerging Markets, not Developed Markets. Therefore I bought the ETF for Chinese exposure, but there is none in this ETF. I did not research enough. There is nothing wrong with this ETF. It just was not what I wanted. I ended up selling this fund.
You should know what you are investing in. There are many options for stock market indexes. And for each of these indexes many funds are tracking them. Therefore, it is essential to research these options!
9. Not considering professional bias
I work in the tech industry. And I like technology. So I invested a small part of my portfolio in an Information Technology ETF. I did not consider that Tech was already present in my other investments. My global world ETF has about 15% of Technology, and 6 of the top 10 holdings are technology or internet company. It is already a significant bias in Technology.
But my real mistake here is that I did not consider that my job is also a bias toward Technology. My current job is tied to the performance of the tech industry. If the Tech Industry crashes, both my job and my stocks could be at risk. It is not something we want.
Avoid a too strong bias in the sector of your job.
10. Not choosing my broker properly
This is another of my investing mistakes where I did not do enough research for a choice.
When I started in ETFs, I decided to go with DEGIRO. I compared Interactive Brokers and found out that it was cheaper for me.
The biggest thing I found was that IB would charge me 10 CHF monthly until I had more than 100K on the account. But I overestimated the time it would take me to get to this value. I should have taken it as a challenge to reach this amount faster. (This fee is now gone from IB).
The second mistake I made was not considering the Tiered pricing of Interactive Brokers. This pricing method makes it extremely cheap. In my first comparison between IB and DEGIRO, I did not account for that. I had to redo the work with the Tiered pricing. In my second and fair comparison of IB and DEGIRO, I discovered that IB was cheaper!
Due to this, I had to switch from DEGIRO to IB. It took me longer than I expected. And changing to a new broker is not something I want to do again.
Do not make the same mistake I did, and consider everything when you compare two services!
11. Experimenting with stock picking
The last of my investing mistakes was experimenting with stock picking.
After I read How I made 1’000’000 on the stock market, I decided to try his technique. I did not invest a lot at all. In total, I invested about 1000 USD in this technique.
I was quite fortunate with this mistake. Indeed, I did not lose much money. I only lost 25 USD in one month. I could have lost more if I was not lucky. I quickly realized that my passive index funds were much more successful than this experiment. The only reason I did not lose more money was that the market was very profitable this month. Instead of losing 25 USD, I could have made 20 USD with an S&P500 index.
I am not saying that people should not hold any stocks directly. But they should hold them because they think they have value. And they should hold them for the long term. Finally, the objective should not necessarily be to beat the market. And, of course, this should be on some money on the side. It should not be a large part of the portfolio for most people.
As you can see, I made my fair share of investing mistakes over the years.
I wish I had realized this before. However, I am only in my thirties, so there is still time to use a better strategy. I am sure I will still make several investing mistakes in the next few years. And I will let you know about them on this blog, of course. But I am now smarter than before, and I will avoid repeating the same mistakes of the past, at least.
The most important thing with investing mistakes is this. Do not repeat your mistakes. Learn from your mistakes. Making a mistake is not always a big deal. But doing it a second time is a big deal. If you learn from your mistakes, they will transform into powerful teachings.
And most of the investing mistakes I made are typical for beginner investors. Hopefully, you will not make the same mistakes I did.
If you liked reading about my investing mistakes, you would like to read about my budgeting mistakes.
What about you? What were your biggest investing mistakes?
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