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.