Thursday, April 17th 2014

Investing Correctly When You Are Young

by Mr Credit Card

The biggest mistake I made in my 20′s was not investing correctly when I was young. Sure I invested in stocks and mutual funds. Sure I made money for years. But I was lucky and looking back, I did not invest the proper way and I spent too much time “researching stuff”.

One of the problems facing young investors is that they normally do not have access to competent financial advisors. Surely there are your friends who join “Ameriprise” or “Edward Jones” – but let’s be honest, you want to be speaking to someone who has been around for a while. But the experienced professionals will not really want to talk to you until you have amassed some assets and level of wealth.

The other problem is that because we have access to the internet, pf blogs, we think we know a lot. But the truth is that there is simply a lot of misinformation on the internet. Even my financial professional friends laugh at Suze Orman and says she is wrong on so many things! Even us pf bloggers will never claim to know everything. We are simply documenting our learning experience on the web and to share what we think and learn.

But first, here is a list of things I did right :

1. I invested in stocks and mutual funds

2. I was saving

But here are the list of things I did not do well.

1. I did not have any bond or bond funds!

2. I did not split my investments between growth and value stocks

3. I did not allocate between large, mid and small cap.

4. I did not have any REITs in my portfolio although I should because they have low correlation with the overal stock market.

5. I did not have any international exposure.

6. I did not rebalance my portfolio.

7. I did not have a proper policy of getting rid of funds or stocks.

When I recently looked back at returns versus what would my returns have looked like if I invested with an advisor with a proper asset allocation, I was shocked. I would have made much more “after fees”. I wasted so much time doing this myself.

One of the other mistake I made (and I’m sure many of us make) is that we all think we can be like Warren Buffet or Peter Lynch. Peter Lynch’s investing in what you know is the most misleading bullshit ever to have been written. This is not how sophisticated investors invest. But we read these books and think we can do as well as these geniuses do! Absolutely ridiculous.

I recently started reading www.pionline.com and other institutional investors magazines and I can tell that the way institutions and professionals invest and do their portfolio allocations is simply at a different level than what you read in Money magazine or what we bloggers do!

So my advice to those who are young is to hire a competent advisor and have your money invested in a professional way. Don’t do what we bloggers do (DIY). My experience has told me you are better off getting off to a good start when you are young. Don’t wait ten years to find out you are not as good as Peter Lynch or Warren Buffet!

One Response to “Investing Correctly When You Are Young”

  1. KCLau Says:

    Great tips! I will definitely learn a lot and avoid the mistake you’ve done.
    Thanks!

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