A lot of the posts in the Investor Alley relate to new investors asking for advice. I though it would be fun for us to share our investing mistakes to help them out. I definitely learned some hard lessons along my short journey!
I'll start :)
In 2007, when I turned 18 I opened my first investment account. By this time I had saved a substantial amount of money (for my age) as I was working long, hard days in a skilled trade (carpenter). The economy was booming at the time and I was making ~$20 / hr and saving almost all of it thanks to living at home.
Mistake #1: I invested in a taxable account (didn't understand the benefits of an RRSP [401k] & TFSA [Roth IRA] didn't exist yet). Stupid me I didn't even realize how much money I would've saved in taxes alone by investing in an RRSP. Side benefit, I had lots of RRSP "room" and currently am almost completely caught up to maxing out that room.
Mistake #2: I invested in five individual stocks. I didn't even know that index funds existed and my parents taught me that mutual funds are a rip-off and generally lose money (they hadn't purchased anything to do with stocks since the crash in 2000). I kind of did some research into these stocks but ultimately based my purchasing decisions on Analyst Recommendations, because who would know better than a highly trained analyst :sarcasm. As a group the stocks under-performed the market a bit, but not too bad and I actually thought I was doing pretty good. I slowly expanded purchases to about ten stocks over the next year.
Mistake #3: Against all odds (because China was growing forever and needed our resources), the Canadian market crashed in the middle of 2008. I sold all my stocks in a panic nearly at the bottom of the market, but at least I didn't have to pay capital gains tax haha! I figured my parents were right from the beginning, and while they felt bad that I lost so much money after working to hard for it, they happily pointed out to me that rich people got rich through real estate. I have several family relatives that are quite wealthy because of their real estate deals / holdings so I looked to them for direction.
Mistake #4: I shunned the stock market when it was at it's bottom (2009), instead focusing on building money in a savings account at 1.0% interest so I could get enough for a downpayment for an investment property. If I would've kept my money in the stock market and just purchased index funds, I would've recouped my losses quickly and be well ahead of where I am now.
The turnaround: After quickly saving up a good chunk of money again, I went shopping for investment properties. Property is so expensive where I was living, that it is impossible to follow the 1% rule. I was looking at properties where the rental income would barely exceed the mortgage payment, property tax, and some minor maintenance. My family assured me that property prices always go up so I didn't need to worry about income so much as I could bank on the capital gains (in western Canada the property market rebounded so quickly in 2009 that it really was barely a blip). After spending a huge amount of time looking for the right rental property and coming within inches of purchasing one, I backed out when I realized that it's just too much risk for very little reward and I could easily lose money through vacancies and major maintenance. Instead I moved to my current location in Alberta, used the money to buy my own place, and read a lot of good books: The Wealthy Barber, some David Bach books, the Canadian Couch Potato and Canadian Capitalist website, etc. I also took a temporary time-out on investing because I had to figure out my new direction.
Moving forward: I opened a self-directed RRSP [401k] account and TFSA [Roth IRA] account. I am now 100% committed to low-cost index ETF's ONLY. I am investing regularly and will never make my old mistakes again. I see the benefit of dollar cost averaging: purchasing in regular intervals over a long period of time so that the average weighted cost of each unit is low due to buying more units when the market is undervalued and less units when the market is overvalued. Now I rarely look at market movements and don't even know the value of each unit, except about once every few weeks when I purchase more commission-free ETF's in my Questrade account.
I hope my story helps some of the newer investors on this forum. Please share your own story!!
