Over the years, I made many investing mistakes. In this post, I will relate on my 9 biggest investing mistakes and what I could have done better. It is also the story of how I got into investing early and left very early. And finally started investing again way too late!
It is very important to learn from your mistakes. And it is also very important to recognize your mistakes. There is no value in thinking 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 mistakes of other people.
1. Not holding funds
My first attempt at investing was around 2014, when I was 25 years old. I was contacted by my bank at the time (Raiffeisen). I was offered a large choice of funds. At that point, I had zero experience with investing. I did not really know what to do. I decided to invest 4500 CHF. For this, I chose three funds, one bond fund, and two stock funds. I chose mainly based on past performance. Actually, I was smart enough to choose funds with some diversification and with some interesting stocks. But I had no idea what the Total Expense Ratio (TER) was. One of the funds had 3% load fee and 1.25% TER. This is pretty bad. I should have made more research.
The first of my investing mistakes was to get 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 a very small profit. I tried to cut my losses early. Had I waited a few years, I would have made a very good 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.
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 for investing again. In late 2015, I opened a funds account at PostFinance. I do not remember exactly what made me invest at that time. I think it was suggested by my bank advisor. This 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 at that time. This fund has a 0.5% load fee and 1.11% TER. This 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 invested again earlier instead of waiting 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 some movies and books, I had no idea what was 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 much better options. First, I decided to simply use other funds offered by PostFinance. They have a few funds with TER below 1% and several funds are no-load. 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. This is not a really bad portfolio. However, It was a bit complicated. Later, I learned to simplify my portfolio.
The average TER of my portfolio was better now. But it was still way too high. It took me a few more months to learn about really cheap funds and Exchange Traded Funds (ETFs). At first, I researched if I could do on PostFinance but their fees are absolutely outrageous. I recommend that trading on PostFinance be avoided at all costs ( ;) ). After researching several options, I decided to use DEGIRO as my broker. Then, I started investing in the Vanguard Total World (VT) ETF. From this point, I invested in low-cost funds only. With a cheap broker and cheap ETFs, this made my overall fees very low.
4. Investing in cryptocurrencies
Another of my investing mistakes was following the crowd and buy into crypto-currencies. I started to buy some Litecoin (LTC) on Coinbase. Then, I invested into Bitcoin (BTC) and Ethereum (ETH) through an Exchange Traded Note (ETN). I was just following the crowd and thinking it was dumb to miss the returns. And of course, I invested way too late. I bought just 5 days before the all-time high. Fortunately, I did not invest a lot. I put around 700 EUR in Bitcoin and around 220 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 did not sell at a loss at least. But I decided to go out of the crypto-currency gambling game. I do not think BTC has any real value, only a gambling value. It is not a smart investment. Moreover, there is too much volatility for my liking. I was already able to sell my Ethereum for about 30 EUR profit. But I am still holding on my BTC ETN. I am still down 45% on this investment. I am not sure I will ever be able to sell this fund for a profit. But I will at least wait until the end of the year before selling at loss.
This taught me not to gamble my money. Smart investing is not gambling. And cryptocurrencies are a gamble.
5. Investing in a too complicated portfolio
Once I realized that index investing with low-cost funds was the way, I set up on design my portfolio. I tried to be smarter than other people. As a result, 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, but it is doable. My new portfolio only has three funds. And it could be simplified further to two funds. A simple portfolio is easier to manage and to rebalance. And it is often more efficient than a “seemingly smart” one.
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 did the investment, 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 at all.
I think it is always a good idea to ask for advice before investing. You can ask advice on your favorite personal finance blog or on the bogleheads forum. Ideally, you want several points of views on a decision before making it.
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 considered the bond allocation of my investment portfolio. But I have also 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 taking an allocation decision. Once I had the big picture, I saw I needed more stocks. I ended selling these two bond funds when reviewing my portfolio.
8. Buying without enough research
This one is a bit silly of me. I bought Vanguard FTSE Pacific ETF and allocated 5% to it 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.
9. Not considering professional bias
I work in the tech industry. And I am a big geek, I really like technology. So I decided to invest a small part of my portfolio in an Information Technology ETF. I did not consider that Tech was already present in my other investments. In my global world ETF, there is about 15% of Technology and 6 of the top 10 holdings are technology or internet company. This is already a large bias in Technology.
But my real mistake here is that I did not consider that my job is also a bias towards Technology. Currently, my job is not linked to the performance of the tech industry, but my next job will be. If the Tech Industry crashes, both my job and my stocks could be at risk. This is not a really good idea. Too strong bias to the sector of the job should be avoided.
As you can see, I did my fair share of investing mistakes over the years. I wish I had realized this before. However, I am only 30 years old, so there is still some time to apply a better strategy now. I am sure I will still do several mistakes in the next 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 mistakes of the past at least.
The most important thing with investing mistakes is this. Do not repeat your mistakes. Learn from your mistakes. Doing 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.
What about you? What were your biggest investing mistakes?