7 Powerful Lessons From 1 Big Mistake
IN my last article I confessed my biggest financial mistake. It’s a fairly silly tale about a car number plate, but you can use the story to become a better investor.
No, seriously. Just look at how it helped me…
Lesson 1: Find the cheapest option
I should have shopped around when buying my number plate. Nowadays when picking an investing platform I always do my homework.
I look at the annual platform charges, dealing costs, even exit fees. Comparing your options helps you make better decisions. Plus, it saves you money. Better in your pocket, than in theirs.
Lesson 2: Consider the costs over the long-term
I didn’t bother to think about how many times I would have to pay transfer charges to keep the number plate when changing cars. This really added up over 20 years.
That’s why I take a long-term view when looking at ongoing charges for funds and ETFs. Saving 0.25% by switching to a cheaper alternative doesn’t seem like much when you first start investing and only have a small pot.
But trust me, after 20 years of regular contributions that pot will be huge. And when you compound all those years of saving an extra 0.25%, it will add thousands to your retirement.
Lesson 3: Don’t do what’s popular
I wanted that number plate because I wanted to be cool and didn’t want my friends to know I was driving an old car.
These days I don’t care what other people think. I make my own decisions.
I don’t care if my buddies think it’s a bit weird that I live beneath my means and like to invest for an early retirement. I do it anyway.
And when it comes to investing, I don’t pile my money into the latest fad. Instead I am a contrarian investor.
I buy things that I believe are under-valued in the short-term, and hold them for the long-term. When everyone else is panicking and selling, I run the other way. I am not a sheep.
Lesson 4: Look at the big picture
My idea was to put that number plate on a classic clunker like a BMW 3 Series. But my youthful mind didn’t stop and think about just how many classic clunkers I would own in my life. It was unrealistic of me to think I’d buy more than one before growing up and driving more sensible cars.
Unfortunately I could only dream about that old BMW. I didn’t think about how much “value” I’d get from the number plate. As it turned out, I never bought that BMW… or any classic car for that matter.
So I got zero value.
I didn’t look at the bigger picture but now when I invest, my vision is widescreen. I don’t have a crystal ball but I try to think far enough into the future.
I plan how I’m going to slowly switch from equities into safer bonds when I’m older to lock in returns.
I have considered different scenarios looking at how much money I will need in early retirement.
I have planned how long it will take me to hit my “number” and what I will do when I’m no longer working. Plus, options if things go wrong.
Lesson 5: Don’t jump in too fast
I should never have bought that number plate because I never used it for it’s intended purpose. I acted rashly and it has cost me.
This taught me to avoid making snap-decisions with my finances. Time and again I’ve seen people rush in and buy shares after a price fall because they’ve convinced themselves it’s a once-in-a-lifetime bargain.
Rarely is this the case. Usually the stock will plummet further.
If you just take the time to do some more research, you can weigh up the pros and cons before making an informed purchase. Then you can buy with confidence, knowing you’ve not pressured yourself into a hasty decision.
Besides, we’re all in this investing lark for the long haul, right? Or at least we should be.
So those “once-in-a-lifetime” opportunities will come around fairly regularly. If you miss a few, it won’t really matter over the course of 20 years.
Lesson 6: Bite the bullet and make a change
Okay, I know I haven’t yet binned that expensive number plate but that doesn’t mean I shouldn’t.
Sometimes you need to switch investments to meet your goals.
For example, I’m in the process to moving one of my pensions to another provider. The reason for this is the new platform charges half of what I’m currently paying.
This change means a bit of hassle for me.
I have to do my research, contact the two providers, get them to send me some forms, fill the forms in, set up a new online account, and then chase up both ends if the transfer isn’t going quickly enough.
Plus, the transfer has to be done as cash, so I’ll be worrying about being out of the market for a while, which could cost me thousands if investments rocket in the meantime.
It would be FAR easier to just keep on paying double the fees and stick with my current provider.
But that would be the WRONG thing to do. The savings over the years will far outweigh any problems I might encounter. I need to take a deep breath and get it done.
Another example of taking the bull by the horns would be rebalancing your portfolio.
Once you’ve decided on a sensible allocation, you really should be putting a higher percentage of your regular contributions into your LOSING investments.
And if your winners have shot up, then once a year or so, it’s advisable to SELL some of them and put the proceeds into the parts of your portfolio that aren’t doing so well.
This seems strange and against all logic, but these changes have to be done.
You chose that sensible allocation for a reason. So keep the portfolio balanced. It’s your plan, so stick to it.
Lesson 7: Learn from your mistakes
I write about this a lot. Because it’s important. And it’s true.
I learned a helluva lot from buying that blasted number plate.
Yes, it has cost me £780 ($1,150) so far over the years, but that’s a small price to pay for seven great lessons in financial wisdom.
And now I’m glad I can pass on some of the things I learned to you for free.
(Although if you fancy clicking on a couple of ads on this website, I sure would appreciate it. That way Google pays some of my hosting costs.)
If you do make an investing or other financial blunder, it’s vital you don’t beat yourself up over it.
Just dust yourself down, think about why it happened and what you’d do differently next time.
Then keep going towards your goal.
Do you have any other pearls of wisdom about how to become a better investor? Have you managed to turn one of life’s negatives into a positive? I’d love to hear from you in the comments below. If you found this article helpful, please share it using the Twitter icon. Thanks for reading.