Money and Happiness | The Seven Biggest Mistakes Investors Make
Investing is a mixture of hope, fear, regret, desire, security, ego, greed, doubt… No wonder most of us are screwed like kings.
Here’s a list of the seven biggest mistakes made by newbies and seasoned investors to make the most of 2023 in the markets.
1. Not investing
The biggest mistake is not investing. Working without keeping a portion of your salary is a bit like being a hamster on a wheel: you move a lot, but you get nowhere. Even worse, we make others (coffee shop owners, clothing store owners, cell phone company owners, etc.) richer by giving them all of our dollars, even when we owe more than all of our dollars. Personally, I think saving 10% of your salary is key, but investors can start with smaller amounts: $100 a month is $3.33 a day. Within reach of most people.
2. Invest according to the news
Is recession inevitable? Will the Republicans stop the US government from paying its debts? What was John Legend thinking when he found his daughter’s name? These hot topics dominate the news. That doesn’t mean they should influence us as investors. Trying to predict the direction of the market in terms of disinvestment or a possible recession due to rising unemployment is a mistake because the market is unpredictable in the short term. It’s best to put our investments on autopilot and invest every payday without thinking about it. And remember: unless you’re retired, you should pray for the market to go down, because every dollar invested gets more invested when it goes down.
3. Try to beat the market
The bad news: almost all amateur and professional investors can’t beat stock market returns. The good news: you don’t have to beat market returns to find your place among the world’s best investors. All we have to do is buy the entire market through exchange-traded funds (ETFs), fund our investments with fresh money, and be patient. A diversified and balanced portfolio of 60% Canadian, American and international stocks and 40% bonds has averaged 8.6% annual return over the past half century. $10,000 invested this way 50 years ago is worth more than $675,000 today. Add $1,000 a year in investment during that time and we’re at 1.4 million. Investing is simple, but not easy.
4. The fear market is falling
Market declines make headlines when they happen, but in reality they are necessary to ensure long-term growth in our assets. Panicking because the market is down makes as much sense as panicking because it’s snowing in January. Downs are the exception: North American stock markets have risen almost 7 out of 10 years since the 1930s. Every investor is different, and those who tend to react better rely on professionals who can help them maintain their investments. a cool head in the waterfall. Those unaware of or unaffected by the downturns may be better off managing their investments in accounts offered by Questrade or WealthSimple, or in discounted brokerage accounts at financial institutions.
5. Impatience
Investing and getting rich are life projects. Think in decades, not years. Over the long term, our investments actually start to multiply due to the phenomenon of compound interest, which is simply interest earned on interest, causing a snowball effect. Investor Warren Buffett’s wealth today is 108 billion. More than 107 billion of this amount was collected after he celebrated his 55th birthday.
6. Don’t minimize taxes
Unlike gains from the sale of a principal residence, investors must pay taxes on half of their stock market gains, half of which is simply added to their income in the year the investments are sold. To avoid this, we can keep our investments inside an RRSP, where contributions can be deducted from our income and the gains will only be taxed on exit, ideally when we make less money in a leave year. or we retire. Or in a TFSA, where the contribution limit was just raised to $6,500 this year, and where our investments can grow and are tax-sheltered even if we take them out of the TFSA — our own personal tax haven. If you’re a parent and haven’t opened an RESP for your kids, stop reading this and go do it: you’re missing out on the guaranteed 30% subsidy paid by our governments on your annual contributions of $2,500 per child.
7. Make things unnecessarily complicated
Owning ETFs means investing in thousands of companies in different industries around the world. In short, this is the essence of diversification. To name just one, the all-in-one Vanguard Balanced ETF Portfolio (VBAL) fund holds 13,639 publicly traded companies and 17,996 government and corporate bonds. It is not necessary to add anything else to it. As financial author Jason Zweig points out, “If you think investing is good, you’re not doing it right. Investing should be a mechanical, repetitive process. It’s hard for people to accept that. »
Question of the week
What investment mistake have you made?
