Joseph is one of the smartest people I know, and when he asked me to share his money story, how could I not? If you’re intimidated about investing (I used to be one of those people) you’ll want to read his story.
I lost thousands of dollars on one of the worse investment mistakes but learned a valuable lesson that can help your nest egg grow
I don’t usually share exactly how much I lost on this money mistake but it was nearly five-digits…so yeah, a mistake I don’t want to make again.
It’s one many other beginner investors make yet few ‘experts’ seem willing to help solve the problem. It’s probably because those supposed investing experts directly benefit as investors pay millions in fees and drive advertising dollars.
My own money story is a roller coaster and a little embarrassing for someone that has since become an investment analyst but one that I wanted to share so others don’t make the same mistake.
From Rags to Riches and Back to Rags
I did well in the lead up to the housing bubble. I started buying houses after leaving the Marine Corps in 2001, houses that I could fix up and flip for a big payoff. I had more money than at any point in my life and loved watching it grow.
But flipping and renting real estate is a round-the-clock job. I wanted to put my money in something that would appreciate without all the work. I had always been intimidated by investing but knew that I wanted my money to work for me instead of always having to be looking for the next real estate deal.
So I started watching CNBC and reading all the advice I could get on investing websites. If you’ve ever clicked over to one of those websites or the financial news network, you know that there is never a lack of opinion on the next hot stock. I was investing in two, sometimes three new stocks a week and looking for the quick buck.
That’s what I thought investing was about, buy-low and sell-high.
But I was wrong, big time. The problem was that I was buying stocks based on the hype from the TV pundits, buying in after the price had already gone up. I was also investing based on a commercialized perversion of investment.
I ended up losing a ton of money because I would jump out of stocks after just a few weeks, racking up losses on bad picks and paying thousands in trading fees.
The problem is this misguided idea of investing is nurtured by most of the investing advisors on TV because it means you’re glued to the TV for investing ideas. Brokers love the fees it generates and all the websites or TV channels love it because it’s worth billions in advertising.
Investing is About YOU, Not About Beating the Market
One of my worst investment mistakes was an expensive lesson but also a valuable one that I’m glad I learned. After losing more than I’d like to admit, I started over with a personal investment plan. This is a written plan based on your long-term financial goals rather than some stock-picker’s idea of the next hot stock.
I also learned that winning the stock market game isn’t about beating the market but about beating your financial goals. Part of that means playing like an amateur, investing for the long-term instead of trying to jump in and out of stocks like a professional money manager.
I started investing on Motif Investing which allows you to group up to 30 stocks and buy them all with one trade. Not only does it save money by making less stock trades but I worry less about each individual stock because the larger group rises and falls less wildly.
How You Can Prevent Making One of the Worst Investment Mistakes
Everything I learned about investing can be summed up by a few stock market basics, easy rules that make investing as stress-free as possible and help to avoid the big money mistakes.
- Investing is about YOUR goals, not about picking stocks. Investing advice you hear on TV isn’t meant to make you money. It’s more entertainment than advice. Understand your own goals and what investments are right for you.
- Investing isn’t just about stocks. You absolutely must invest in other investments like bonds and real estate. This diversification will help your wealth grow even when stocks are falling. Both of these investments are easily available as funds that give you access without buying real estate or bonds directly.
- Don’t supersize your portfolio with borrowed money. Most brokers will let you borrow money to invest, called margin. It can help increase your returns but also magnifies your losses plus charges interest on the loan.
- Investing is about what you put in. Even on a high rate of return, your investment earnings only amount to more than the money you put in after nearly two decades. Think of your investments as a really great savings account. Put money in regularly and you’ll see the balance grow.
Don’t follow the ‘advice’ of investing experts on TV and don’t think you need to pick the next hot stock to get rich. That’s not what investing is all about. Avoid the investment mistakes I made and put yourself on the long-road to financial freedom. Follow some basic stock market rules that will help you invest according to your needs and watch your nest egg grow.
Joseph Hogue, CFA is an investment analyst and blogger. He runs six websites on topics including personal finance, investing, crowdfunding and making money from home. A veteran of the Marine Corps, he holds the Chartered Financial Analyst (CFA) designation and lives with his family in Medellin, Colombia.