Author Topic: Please share: Mistakes you made as new investor  (Read 4924 times)

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Please share: Mistakes you made as new investor
« on: September 02, 2014, 12:12:19 PM »
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!!

Gone Fishing

  • Magnum Stache
  • ******
  • Posts: 2754
  • So Close went fishing on April 1, 2016
    • Journal
Re: Please share: Mistakes you made as new investor
« Reply #1 on: September 02, 2014, 12:32:20 PM »
Funded my Roth for the first time in 2000 just in time to watch it get crushed.  It didn't help that I bought high fee mutal funds that I hung onto for way too long afterwards.   

Wasn't new to investing at the time, but after the 2008 crash, I bought plenty (DCA) but also I held onto way too much cash waiting for the double dip that I should have been investing along the way given how cheap everything was at the time. Ended up dumping most of it in the market after missing several good years. This was probably my biggest "mistake" ever $ wise.  Probably cost me year of work or more.

I've never sold in a panic, but I've bought plenty at the top of the market.

Not too bad, I guess.  You can't dwell on the mistakes. Most of them would have been successes if things had gone the other way.  All you can do is get back on the horse and keep riding.

Right I am wondering if I should be stockpiling cash now for the next crash, but timing hasn't worked out real well in the past so I think I will just keep dollar cost averageing for now...     
« Last Edit: September 02, 2014, 12:46:49 PM by So Close »

fatSquirrel

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Please share: Mistakes you made as new investor
« Reply #2 on: September 02, 2014, 02:44:37 PM »
When I was a Freshman in college, my grandmother gave all of us grandkids about $2000 to do as we please.  I think most of my cousins spent the money, but I of course decided to invest in the stock market. 

At the time I was an undefined major taking a business course to transfer into the Management School at my college.  We had a class on finance and investing in the market. They split us up into different groups and off we went doing some "research" and using "theories" that I cannot recall to select individual stocks.  And at the end of the semester we did financial analyst and presented how our portfolios performed.

Anyways, so based on that experience in class, I open up an E*trade account and invested my $2000 in about 4-5 different individual stocks.  Eventually I lost most of the money through trading and just holding too long.  It was around 2000-2001, time of the tech crash, so that didn't help. DOH!

Mistake and Lesson Learned: It's hard to beat the market by selecting individual stocks; keep costs down, diversification is key. I'm better off sticking to INDEX investing with good asset allocation.

What's funny, is that I remember in our final team presentation that our 5 stock portfolio did really well!!!!

marty998

  • Walrus Stache
  • *******
  • Posts: 6544
  • Location: Sydney, Oz
Re: Please share: Mistakes you made as new investor
« Reply #3 on: September 02, 2014, 03:48:11 PM »
TuxedoEagle, I made all 4 of your mistakes and I was leveraged.

Used to laugh about people who were losing money and were in denial. Then I became one of them.

Never again.

Eric

  • Magnum Stache
  • ******
  • Posts: 4061
  • Location: On my bike
Re: Please share: Mistakes you made as new investor
« Reply #4 on: September 02, 2014, 04:39:37 PM »
Opened by taxable and Roth accounts at Sharebuilder because it was conveniently linked to my ING Direct bank account.  Proceeded to buy Vanguard EFTs at $9.95/trade when I could've gotten the same thing for free directly at Vanguard.com.  We're probably only talking a couple/few hundred bucks, but what a waste!  And of course I'm not done yet as I'll have to pay to sell too when the time comes.  Those are some costly convenience fees.

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Please share: Mistakes you made as new investor
« Reply #5 on: September 02, 2014, 04:43:43 PM »
TuxedoEagle, I made all 4 of your mistakes and I was leveraged.

Ouch! I can only thank God I was 18 - 19 and didn't have any access to credit because I would've made the same mistake.

surfhb

  • Guest
Re: Please share: Mistakes you made as new investor
« Reply #6 on: September 02, 2014, 04:46:24 PM »
Not following every piece of advice on the boglehead wiki when I landed my first job at 23

Beyond that I'm made absolutely no bad financial mistakes at all :)

RFAAOATB

  • Pencil Stache
  • ****
  • Posts: 602
Re: Please share: Mistakes you made as new investor
« Reply #7 on: September 02, 2014, 05:22:49 PM »
1.)  Keeping my TSP money in the G fund way too long.
2.)  Not getting the 401k match at one of my jobs.
3.)  Not investing at all in my pre tax account for two years at my current employer.

Gone Fishing

  • Magnum Stache
  • ******
  • Posts: 2754
  • So Close went fishing on April 1, 2016
    • Journal
Re: Please share: Mistakes you made as new investor
« Reply #8 on: September 02, 2014, 05:25:02 PM »
I'll add another one.  For several years I did not fund my or my wife's Roths and only funded out 401(k)s enough to get the match choosing taxable accounts instead, figuring I wanted to retire before 59.5!

GGNoob

  • Pencil Stache
  • ****
  • Posts: 725
  • Age: 32
  • Location: Colorado
Re: Please share: Mistakes you made as new investor
« Reply #9 on: September 02, 2014, 05:36:17 PM »
Mistake #1 - Not starting sooner I deployed to the Middle East when I was 19. I came home with nearly $30,000 in the bank. Instead of investing it, it was in rotating CDs (my mom was putting it into a CD monthly for me). I then lived off of that money while going to school and driving a brand new car. If I had just gotten a part time job in college and not had the new car, I could have saved most of that money. My tuition was free, I had my weekend drill pay (Army National Guard), and I was getting a monthly stipend from the GI Bill. It wouldn't have taken much work to get by, but I was too busy playing World of Warcraft.

Mistake #2 - Withdrawing my 401k early When I got a new job about 2 years ago, I had a 401k with my old employer that had about $4,500 in it. I didn't know what to do with it, so I just left it. I had never invested a dollar before and that was my first 401k. After a few months, the company rolled it into a Traditional IRA. For whatever reasons, this new IRA was basically a savings account earning like .11% interest. I really wanted to get started investing at this time, but I kept seeing minimum amounts at every investment website I went to. So I said screw the 401k and withdrew it and took the 10% penalty. While I know that was stupid, it was also the best thing that I did. Having the money to "play" around with and try out investing got me addicted! It was only about a year and a half ago when I withdrew the money and since then we started maxing out our Roth IRA's, maxing out an HSA, and we have a "5-year plan" that will allow us to be maxing out my wife's 401k and my 457 plan within a couple of years. We went from having only that one 401k with about $4,500 in it to now having about $40,000 saved for retirement. We are on track to retire in our mid 40s.

So mistake #1 for me was huge and my retirement savings could be so much farther ahead if I had only started saving when I was 19. Mistake #2 turned out to be good for me because once I started investing and doing my research, I realized what it would take to retire and that we needed to change our ways and start saving more!

bigchrisb

  • Handlebar Stache
  • *****
  • Posts: 1172
Re: Please share: Mistakes you made as new investor
« Reply #10 on: September 02, 2014, 06:47:21 PM »
I'll echo these.

- Investing based on the latest hot tip speculative stock. Lost 80% in a few months
- Getting gunshy about stocks for years after the tech wreck and missing a lot of gain there
- Using too much leverage, (including 0% balance transfers on credit cards as seed funding for a margin loan)
- Buying the wrong assets in the wrong tax structure (still paying for some of these decisions)

However, while I've learned some big lessons, I don't regret them.  Mainly because I'm pretty sure my personality type would have to make these mistakes first hand to understand that they can happen to me too.  I'm glad that I've got them out of the system, and can get on with it (now 32, close to FI).

I do wonder what I'm doing at the moment that I'll look back on in 5-10 years time and think that I should have done differently.  I guess that's hindsight, and learning!

thedayisbrave

  • Pencil Stache
  • ****
  • Posts: 700
  • Location: Raleigh, NC
  • CFO @ My Life
Re: Please share: Mistakes you made as new investor
« Reply #11 on: September 02, 2014, 06:54:06 PM »
I'm a dabbler.  I am one of those where I always want to get into individual stocks, then a few months later, change my mind.  Very dangerous, I know.  I only experiment with very small portions of my overall NW so it wouldn't be disastrous if I lost it all, but it's a really bad habit.  Fortunately I haven't lost large amounts of $, but because I haven't held them for very long I didn't gain much either.  Every now and again I get the itch to play around in some individual stocks again but so far I've kept my hands tied.

Hugh H

  • 5 O'Clock Shadow
  • *
  • Posts: 75
Re: Please share: Mistakes you made as new investor
« Reply #12 on: September 02, 2014, 07:17:32 PM »
I've tried catching a falling knife one too many times. Have gotten cut up badly because of it. It's still one of my favorite hobbies so I guess I haven't learned from it.

pdxvandal

  • Bristles
  • ***
  • Posts: 305
  • Location: Earth
Re: Please share: Mistakes you made as new investor
« Reply #13 on: September 02, 2014, 10:13:34 PM »
Selling ~10k worth of gifted shares of XOM in 2003, after holding them for one year. It went up quite a bit after I sold it. Dumb.

Ftao93

  • Stubble
  • **
  • Posts: 230
Re: Please share: Mistakes you made as new investor
« Reply #14 on: September 02, 2014, 10:50:24 PM »
Not really investing at all and holding a lot of credit cards too long.

I didn't have a bit of investments in 2012.  I should end 2014 with @ 20k, and I'm 38 years old. 

Had I taken these things to heart much sooner, I could be comfortably retired at 50ish,  maybe sooner!

trailrated

  • Handlebar Stache
  • *****
  • Posts: 1136
  • Age: 32
  • Location: Bay Area Ca
  • a smooth sea never made a skilled sailor
Re: Please share: Mistakes you made as new investor
« Reply #15 on: September 03, 2014, 09:34:25 AM »
The first 7 months at my job I elected to contribute to my 401k. I thought the default would just throw it into a plan for me. I found this blog and went in to see the ER's of the investments available... and found out that through this booming time in the stock market my money was sitting there not invested in anything missing out on all the gains.