One thing we all have in common is that we make mistakes. Maybe you made the mistake of getting back at your ex or fighting the biggest guy at the bar. These are very punishing mistakes, but if you ask me, the worst mistakes you can make with your money. But no matter what, we learned from our mistakes and the keys to moving forward.
So here are five investing mistakes I wish I’d known when I started:
Mistake #1: Trying to Invest Like Big Money Investors No Matter
Who are you?
We all look at others and want to emulate their actions.
Want to be their favorite movie star or musician?
We all get influenced by the people we look up to, but when it comes to investing, it’s always best to look at yourself. Not as we see athletes and celebrities in the world of investing and often mimic the investment efforts of those with deep pockets, which is why people like Warren Buffett and Ray Dalio.
As investors follow so closely, they want to emulate the success of these two men and see their financial wealth grow over time in many situations. The actions of those who have succeeded before us make a lot of sense, but when it comes to investing, you need to tread carefully.
Trying to invest like role models and what approach I took instead has brought me greater financial returns When I started getting serious about investing five years ago, I knew I lacked this knowledge.
I needed to make wise investment decisions, and so I did what any millennial would do when they needed to learn something. I watched YouTube to find a way around investing.
I started watching tonnes of content and, over time, I started to realize that most of these creators had invested a lot in individual stocks and so I followed suit. I started buying because I enjoy watching the people I follow, hoping to cash in on the same kind of return.
Not sharing good financial advice, but what I failed to realize was that they were in a much better position to succeed using this investment method than I was for beginners. There is a lot of money to be invested.
That means they can afford to buy a host of different stocks and get the proper diversification that I wasn’t able to get given the limited funds I was investing in other creators I was trying to emulate.
They had a significantly higher level of experience and knowledge of the market, which meant they could easily price stocks and predict their future performance better than ever before.
For them, the strategy of buying individual stocks usually worked, but for an inexperienced investor like me, this approach was a one-way ticket.
Red Zone After losing thousands of dollars after realizing the flaws in my investment approach, I learned that when it comes to investing, you need to work within your weight class.
This means that your investment should match your experience level. I had no right to invest in more sophisticated assets as I was new to the investment game and thus shifted my approach towards a simple investment strategy combining dollar-cost index funds with low-cost index funds.
For me, I didn’t need to have a tonne of market expertise, nor did I need to spend hours a day researching and analyzing specific companies to see really solid returns. I never get to that point without trying to mimic the investment decisions of the people I look up to.
Mistake #2: Waiting To Start Investing
If you’ve been listening carefully, you’ll notice that I just said that I started taking investing seriously when I was 25. I have started, but I feel like I left a tonne of money on the table by holding off on investing until now. Don’t get me wrong, if you are currently investing or about to start If you think there is never a wrong time to start investing, make sure you hit the like button below.
I know where all my fellow investors are. You’ve heard the saying that it’s never too late, but an extended version of it goes that it’s never too late, and it’s true when it comes to investing. As you know, I spend a lot. Educating myself about wealth building strategies and the more I educate myself on the subject, the more I realize that if I had started investing when I was of legal age.
How much extra money could it have?
As an example, I mean, as I said, I started investing $25 every month. I invest 1,000 dollars in low-cost index funds, assuming I invest the same amount from now on. By the time I’m 65, at seven percent, I should have $2.6 million. Now the crazy part is if I started investing $1,000 a month from age 18 to 27.
And then, at age 65, never having invested a dollar again, I’d have almost as much money as I would have invested $1,000 a month for the next 40 years. It’s a testament to the power of compound interest and, admittedly, one of my biggest investing mistakes right now. Luckily, I’ve corrected that mistake to some extent by adding more to your investments each month.
But you can never get back the lost time, so don’t make that mistake. I did it and started investing as soon as possible, if you haven’t already, so I’m going to start you on your investing journey today by sharing a very special offer from Todd. I take off on the right foot.
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Mistake #3: Thinking I Could Time The Market
Isn’t it funny that if you ask a hundred people if they think they’re smart, all hundred will say yes? I mean, I’ve yet to meet someone who admits that they aren’t the sharpest tool in the shed. Well, all four people will be coughing in their abilities.
The truth is that our perception of our knowledge and expertise can get us in trouble, and this is certainly the case when investing, similar to the mistake I made thinking I could pick winning stocks.
Another embarrassing investing mistake I made in the past was trying to time the market I thought to myself how hard could it be to Simply buy a stock wait for it to rise in price and then sell it well I came to learn that while doing so was simple it isn’t easy in fact when.
a study of actively managed funds found that active managers leg market returns 57 of the time taking a step back these same poor results have been seen for the last 20 years as just over 80 six percent of the time active stock fund managers have underperformed the s p composite 1500 index.
Now, I’m not going to lie. Even if I had known these stats earlier in my investing career, I would still have likely tried my hand at some point in the market because that’s just the type of guy I am. However, I’ve now been burned enough times to know that time in the market is a fool’s game and I don’t want to play that role of a fool any longer, so as such, I now Buy and Hold, and so far this approach has worked out pretty well for me.
Mistake #4: Being Impatient
Looking back on my childhood, one of my fondest memories was spending endless hours playing Pokemon on my Game Boy Color. I was obsessed with the game, and as such, I needed to catch them all. However, after struggling to hold on to some difficulty,
I started to get frustrated with Pokemon and ended up buying a game shark that I could use to enter cheat codes and instantly fill my Pokedex while having access to every Pokemon was great. What I wanted was an indication of the trade that followed my path to financial growth. Until a few years ago, I can tell you that impatience and investment do not mix well.
They definitely both start with the letter “D.” But this is as close as these two conditions should ever come to each other because impatience while investing can have very harmful consequences. As I have already said, I have timed the market. I have tried Why I did this because I wanted to win fast and now see my portfolio grow exponentially. I can tell you if I find time to do it.
That these poor decisions are derived from my lack of patience is just the lack of patience that we see these days with the multitude of people investing in coins or meme stocks because they see the shiny things that they think lead to wealth, even if they are more of a mirage than a real oasis.
I realize that most experienced investors will tell you that the profits are in the long term, so you should buy and hold stocks or funds instead of trying. Better ones you really believe in. What comes fast enough to realize a quick win often goes fast, and when it comes to your money, you want it to stay with you for the long haul, not just the good times.
Mistake #5: Misunderstanding Investing Fees
Alright, so up until this point, I’ve shared with you some very big investing mistakes that I’ve made in the past. However, one of the worst mistakes that you can make, and one that I made quite a few This expense covers a professional’s advice, fund supervision, and any administrative costs associated with handling your account or the fund as a whole.
According to Morningstar, the average management expense ratio of an equity fund is 2.28 percent. That seems pretty insignificant, doesn’t it? Here’s how I want you to look at the true cost of working with a financial advisor and incurring these fees regularly. I was underestimating the cost of investing fees.
You see, if you work with a financial advisor, then you should know that obtaining their services does come with a cost, and typically this cost is referred to as a management expense ratio This expense covers a professional’s advice on the supervision of the fund.
Any administrative costs associated with handling your account or the fund at large According to Morningstar The average management expense ratio of an equity fund is 2.28 percent It seems pretty inconsequential, right?
Here’s how I want you to view the true cost of working with a financial advisor and incurring these fees regularly Let’s say that this year you have a gross return of six percent The market wasn’t that hot, but you are still well ahead of inflation at this point.
I don’t know about you, but this seems like a lot of money to be handing over to someone who, as I said earlier, likely won’t even be able to offer you greater returns than a simple index fund could offer. In fact, things really hit home when I crunch the numbers on my own investments.
As I said, I invested a thousand dollars a month, and if I were to hand over two percent of my investments for the next 40 years, I would be giving up over 700,000 dollars. Therefore, what I’ve come to learn is that minimizing my fees plays a huge role in achieving greater levels of wealth.