Sunday, December 27, 2009

My Top 3 Investing Mistakes

This is the last regular Sunday feature looking back at selected articles from the early days of this blog before readership had ramped up. The pool of under-appreciated articles has been exhausted. Enjoy.

The Dividend Guy challenged other bloggers to post their top 3 investing mistakes.  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 indexes 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.


  1. Certainly the mutual fund is a common error as they increase their MER and decrease profits.

  2. Doctor Stock: MER increases cause decreased profits for the investor, but increased profits for the fund company. That illustrates nicely the conflict of interest between the two parties.

  3. Great list Michael. Thanks for putting your mistakes out there. I have been guilty of all three at times as well.

    Unfortunately, #3 is a big problem for me right now, as I have stock options and performance share units that continue to go up.

  4. Dividend Guy: Hopefully it will work out for you. One of the mistakes I saw coworkers with stock options make is to think in terms of all or nothing. They looked for the best time to cash in all of their options. You might consider doing a partial cash-in to de-risk your finances somewhat but still participate in the success of your company.

  5. I too initially fell for the high fees on funds. It's now one of the cornerstones of my retirement investing strategy that I detail here Initial charges are also one to be aware of.

    Another big mistake I made was buying commodity ETF's before I understood contango. Now that was painful.