Top 3 Investing Mistakes

In the past few days there has been a game of blog-tag going around the financial blogosphere in which we are asked to outline our three biggest investing mistakes. I have been subsequently tagged by Dividends 4 Life and I am glad to oblige!

When I was born my Grandmother put away $500 for me in a government bond. By the time turned 17, it had climbed to a whopping $1100. What I decided to do with that money next is the basis for all 3 of my biggest investing blunders!

Here, in no particular order, are my 3 Biggest Investing Mistakes:

Mistake #1: Putting All Of My Eggs In One Basket

At the time, I saw that some mutual funds invested in India had been getting 20%+ returns so I decided that I would take that money and dump it ALL into that mutual fund.

Little did I know at the time that I had created one of the greatest errors an investor could make. I had put all of my savings into one investment vehicle. Now, people in history have made fortunes by investing in one single investment…but they knew what they were doing. I wasn’t educated enough to know what I was doing – which leads me to mistake number 2.

Mistake #2: Past Returns Are Not Indicative Of Future Performance

To choose where to invest all of the money that I had saved (or rather had been saved for me) I simply looked at a list of funds and saw the one that had the highest returns over the past few years and decided that was the one for me! I had no idea that these massive returns would not continue, professionals were managing my money so how could I lose?

I did not understand that investments are often cyclical and that “performance chasing” is rarely a good strategy for a long-term investment. It took me several years to understand that the value style of investing is more aptly suited to investors with a long time horizon.

Mistake #3: Buying High And Selling Low

As time went on, I noticed my investment of $1100.00 had slipped to a measly $237.00 at one point (about 3-4 years later). At this point I actually had a decent thought. I thought that I have a long time before I ever need this money, why not just leave it and see what happens? So I actually did leave it for a while. I think it was another couple of years when I saw that it had risen to about $700 or so. I now thought that rather than waiting longer and seeing it lose value again, I would cash it out. So I did.

I bought high and sold low – another big mistake. Although I didn’t lose as much as I could have, that same fund is once again at the level that I purchased it about a decade ago.

Over the years I have certainly made many more mistakes and learned a valuable lesson from each one of them. This example was my first real experience with investing and it set the stage for what I believe has been a moderately successful (to this point) financial turnaround for me.

I hope that you enjoyed this article and are able to learn from my mistakes.

3 comments

  1. Thanks for the tag D4L. It is always nice to review what we have done in the past.
    “If we don’t learn from history, we are bound to repeat it”.

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