This is a guest post by Simon – enjoy!
A sober reflection after ten years of investing.
I made my first fateful investment in 2009. What began then has resulted in a dream scenario – a six-figure investment portfolio. This has given me the financial freedom to take the summer off work and get back to doing what I enjoy.
However, when I look back at a decade of investing, I don’t see a flawless series of successes. Specifically, I believe I have made three big mistakes in that journey, which have held me back in one way or another. I’d like to share these with you in the hope that you don’t make the same blunders as me.
1. Trying to time the market
There are probably two phases to a beginners’ investing journey. I’ll call the first phase ‘the naive phase’. It’s where you’ve grasped the basics of investing, and feel a surge in confidence. Confidence is quite a toxic emotion to bring into the investing game. I didn’t realise this at the time.
I had been studying the pattern of the FTSE 100 over a period of few months and had keenly kept tabs on the tone of economic news. This all culminated in a bold idea. “I think the market is heading down, I should sell now and buy back later at a cheaper price”.
As far as investment strategies go, this is a rather simple play, but it was flawed nevertheless! Over the very short term, you’re as likely to pick the right stock market direction as you are to guess a coin flip. Ignorant of this wisdom, I happily sold my shares.
I sat back and watched as the indexes soared whilst I was out of the market. Hubris turned to humility. I learned that playing ‘hedge fund manager’ was an expensive game.
2. Keeping my passion to myself
At the very start of the decade, I spent a summer studying the investment modules in a UK financial adviser qualification.
In a coincidental parallel, my parents visited a financial adviser that same summer to find a new home for some cash that had matured from a savings bond.
Not wanting to break a taboo around money, I didn’t probe my parent’s objectives or progress and didn’t even follow up on what the adviser had actually recommended.
After completing the course, my parents sought to satisfy my curiosity for investments by throwing a fund brochure at me as it arrived through the letterbox. This was to be their new investment. The glossy booklet came complete with correspondence and account statements. For the first time, I understood how the meetings with the adviser had concluded.
My jaw hit the floor. The fund appeared to be the Harrods of investment funds. It carried an eye-watering 2.5% ongoing management charge. A fee of this size could only be justified if the fund manager planned to personally visit the house each day to provide an update! But there was more. To remunerate the adviser for the difficult task of selecting a single fund, a deduction of 5% had been made from their investment as they signed on the dotted line.
The ongoing charges could only be avoided by walking away from the fund completely. This was a solution which took me a few years to sell to my parents. They were initially sceptical and dismissed my concerns. I suspect their stubbornness was linked to the sizeable fee they had paid for the adviser’s guidance. They needed that advice to be worth all the money they had spent on it. The advice fee would never be recouped.
After that experience, I decided to crush the money ‘taboo’. I began writing about how to buy shares and how to build an investment portfolio on my blog. Most of all, I began talking openly about investments with friends and family. I believe that all of us with an interest in these topics should do our best to get people talking and thinking about their financial future. If the basics spread far and wide, we can put the ‘Harrods of investment funds’ out of business!
3. Assuming that complexity is better
My first investment portfolio was simple. It was formed from three elements:
- An equity fund
- A corporate bond fund
- Some Real Estate Investment Trusts (REITs)
During my early years, it would be fair to describe saving and investing as hobby first, administrative necessity second.
However, enjoying the experience of investing does have a downside – you want to keep doing it! Keen to put my new knowledge to work, I invested in more and more companies, funds and platforms as I discovered new opportunities. After three years, my portfolio had ballooned to over ten components, including exotic things like preference shares.
Managing this web of accounts and investments became a nightmare. If I wanted to invest a few hundred pounds of savings across my portfolio on payday – I needed to pay ten different trading fees. It was inefficient and desperately boring.
Ten years on, I am proud to declare that my current portfolio is a love letter to minimalism:
- A combined equity and corporate bond fund
- Three Peer to Peer lending accounts (to diversify)
Topping up these accounts is a doddle, and this encourages me to do so regularly!
I hope you enjoyed reading about my three biggest investing regrets. Learn from my mistakes rather than making them yourself! Do you have any investing regrets?
About the Author
Simon Oates is the author of Financial Expert, a finance blog with foundation, intermediate and advanced learning series which you can follow at your own pace.
Leave a Reply