Hey Friend,
Monday was a special milestone for me.
It marked 10 years since I began my investing journey.
On December the 15th, 2015, just before my 25th birthday – I invested my first $5,000 on the stock market (into a company called ‘
AFI’).
Since then, our portfolio has grown to $389,418 and returned 25.67% per annum over the last 10 years.
Not bad considering VAS (an ETF that tracks the top 300 Aussie companies) has returned 14.41% per annum over the same time.
But not great considering VTS (an ETF that tracks the total US market) has returned 28.39% per annum over the same period.
Today, I will share five investing mistakes I’ve made on the journey so far.
Mistake #1 – Chasing passive income
I began investing because I fell in love with the idea of ‘financial freedom’ and ‘passive income’. It was a special moment when I received my first dividend payment of $86.
But what new investors don’t realise, is you need a significant amount of capital invested before you can earn life-changing passive income.
One of the mistakes I made early on was chasing investments with a high dividend yield.
These companies are great for income, but not great for growth.
That’s because they pay-out the majority of their profits as dividends to their shareholders instead of reinvesting back into the business to grow it.
When you’re in the early years of building your portfolio, capital growth is far more important than income.
I’m 10 years in, and still very much in the growth phase.
Mistake #2 – Chasing diversification
One of the most consistent messages preached from financial experts is to invest in index funds (ETF’s).
That’s because index funds give you instant diversification across a whole market. This means you don’t need to be a genius stock picker. You will simply get the returns of the market.
It’s a good message. Especially for beginners. And the truth is most people should stick to index investing and be done with it (unless you enjoy the process of picking your own investments like I do).
But if you look at the actions of people who build serious wealth, they don’t do it by diversifying their resources…
They build it through concentrating their resources on their best ideas.
Diversification only happens AFTER they’ve built their wealth, to preserve it.
During the 10 years I’ve been investing, I’ve held 35 different positions.
There were times where my resources were spread far too thin over too many investments.
A few years ago, I trimmed back my portfolio to three positions and concentrated my resources on my best ideas.
This has proven to be fruitful, but the paradox is it takes time to understand what your best ideas/investments are.
Mistake #3 – Chasing speculative investments
I lost over $50,000 during my earlier years.
Not paper losses. Real losses. Largely because I was chasing ‘speculative’ stocks in the hope for making big returns.
But even with those losses, our total returns after 10 years are still over $300,000.
And that’s because you only need a handful of correct investing decisions over your life to get asymmetrical returns.
But one of the biggest challenges is having the conviction and patience to hold on (and add to) your positions when they are down.
During COVID, my biggest position was down 90%… gut-wrenching stuff.
But thankfully I had the foresight to hold on and play the long-game. That position now accounts for over $200,000 of our total returns.
As Charlie Munger said, “The big money is not in the buying and selling, but in the waiting.”
Mistake #4 – Getting started too late
I invested $60,000 of my own money in the first 12 months.
After two years, I had over $100,000 invested. The majority of this was money I put in. And that’s how it always starts in the beginning.
A great goal is to reach the $100,000 mark as fast as possible.
Because once you reach that milestone, compound interest starts to play a significant role. At a conservative 10% return per year, when you have $100,000 invested – your money will increase by another $10,000.
At a million invested, 10% per year will equate to $100,000.
Back then, I was earning good money and had little expenses. So I was able to invest 50%+ of my income every fortnight.
These days, we don’t have as much disposable income to invest each month. Since January 2023, we’ve only added an extra $27,367 of our own money into our portfolio.
But because I aggressively invested in my twenties and we have continued to put money in each month, our portfolio is now worth almost $400,000.
Even if we don’t add another cent to it, it will increase by another $100,000 over the next 12 months (at its current growth rate of 25% per year).
That’s what happens when you invest early and get your money and compound interest working hard for you.
My biggest mistake was not learning about this earlier and starting sooner!
Mistake #5 – Thinking I would get rich overnight
One of the biggest mistakes I made (and all new investors make) is thinking you will get rich overnight after making your first investment (lol).
I had unrealistic expectations about how quickly I would be able to build a 7-figure share portfolio. After some beginner’s luck in the first two years, I thought I was a genius and we were on track to get there fast!
But from years three to five, our portfolio was down…
Growth doesn’t happen in a straight line.
And there is significant turbulence on the journey.
One of the insights that has helped me immensely in investing, business and life – is that it takes seven years before you really start to experience the benefits of compounding.
And if you look at our 10 year investing journey, this holds true.
After Year 1:
Value = $63,440
Total Return = $3,166
After Year 2:
Value = $114,502
Total Return = $25,473
After Year 3:
Value = $84,082
Total Return = ($15,577)
After Year 4:
Value = $86,990
Total Return = ($35,372)
After Year 5:
Value = $142,529
Total Return = $2,104
After Year 6:
Value = $244,225
Total Return = $123,050
After Year 7:
Value = $283,145
Total Return = $150,812
After Year 8:
Value = $333,902
Total Return = $193,530
After Year 9:
Value = $275,663
Total Return = $181,579
After Year 10:
Value = $389,406
Total Return = $304,406
