The Dividend Guy challenged other bloggers to post their top 3 investing mistakes. The most recent blog to take up the challenge was the Financial Jungle. Here is my contribution.
1. Putting my first savings into fixed income investments
I was young and nervous because I owed $85,000 on my first mortgage. My mortgage permitted doubling monthly payments, and my wife and I were taking advantage of this feature every month; I wanted the mortgage GONE. This didn’t leave much for retirement savings, but we did manage to save some money each year.
Unfortunately, I knew very little about the stock market at that time, and we put all of our savings into fixed income investments at our bank. We continued this way for several years giving up the gains available in the stock market. This was a big mistake.
2. Buying actively-managed high-cost mutual funds
My first tentative steps into the stock market were through mutual funds. I worked with a few different financial advisors who turned out to be little more than mutual fund salespeople. It took me quite a while to figure out that I was paying exorbitant fees to own these funds.
Sadly, like most mutual funds, my funds underperformed the index despite the assurances from my financial advisors that I owned some of the best mutual funds available.
3. Owning too much of my employer’s stock
I owned stock in my employer during the high-tech bubble. Fortunately, I sold most of it before the bubble burst, but it would have been a lot smarter to have kept the value of my employer’s stock below some percentage of my total portfolio, such as 20%. If the bubble had burst earlier, I could have lost most of my savings.
Situations like this are often tragic. Take Enron for example. Many employees had the bulk of their savings in Enron stock. They lost most of their money along with their jobs all at the same time. This was a very painful lesson for these people.