You might read through the article and agree with the points, but when it comes to real-life hands-on investing, many can not avoid it. Let us look at it one after another, are you make those mistakes now? Or have you made those mistakes in the past?

 

Mistake 1: Do not have a plan

Ask yourself why do you invest? What is your goal? What is your investment strategy? What is your investment horizon? Do you invest for fun or do you want to grow your wealth?

If you do not have a clear plan, it is likely that you might have different investment strategies even though you are not aware of that. Many people started with stock picking. This is the most common mistake as we all know that 90% of fund managers do not perform better than the et index. If you were not a professional trader or financial professionals, how could you beat the market? Maybe you get lucky, but luck does not mean you are smart and you will do it right next time as well.

Before getting starting with investing and diving into it with all your money, think about what is your investment goal. When do you want to achieve your investment goal? What is your risk appetite? How much volatility can you tolerate? Do you already have an emergency fund? Do you know how much you plan to invest every month? What is your investment strategy?

Once you answered the above questions, then you know what kind of investment products are suitable for you, what is your investment strategy, then you can build a portfolio. For most people, investing long term in diversified ETF using Dollar-Cost Averaging is the best option. Even though some might add some industry or market-specific ETFs or preferred stocks to the portfolio.

Mistake 2: Not managing liquidity well

What it means is that when you put all your money into one investment, you are limiting yourself from other opportunities and expose yourself to high risk. If you have all your money in one investment or asset, you could suffer a financial loss when this particular investment performs badly.

One example is all your money buying stocks in the same industry. When the industry goes through a restructuring phase, the stocks are not performing well. When you need money for unexpected things such as medical expenses or repairs, then you have to sell your stocks at a low price.

There will always be something unexpected happening that we need money for, prepare yourself for those unexpected, manage your liquidity well, so you don’t have to sell investments in those situations. Actually having an emergency fund is a step before getting started with investing.

Mistake 3: Buying ‘too much house’

What does it mean by ‘buying too much house’? It means when someone buys a property, he or she buys the maximum value he or she could afford, takes the biggest loan he or she could from the bank. What happens then. All the savings go to the mortgage, only a few or none left for other investment.

As Matthias mentioned in the video, people usually go to the bank and ask “How much can I borrow?” in general, we want to spend a lot on a home, we are willing to pay as much as we can to buy a nice big home. But we do not have to. We can buy a home within the budget but still nice to live in, then put the extra cash from savings into other investments. Not only that it diversifies the asset holdings, but can also generate more return.

For example, if you can afford a $500,000 home. But you can use all your savings for a downpayment, then every month you have to use your savings to pay back the mortgage. In the end, you have nothing else left for other investments. And all your risks are concentrated on the property. when the property market goes down, the value of your house is going down but you still have to pay the same mortgage.

Alternatively, you can buy a $350,000 or $400,000 home if it still meets your minimum criteria. You can use the extra cash for stock market investment which in long term can generate a good return. In the last 10 years, the S&P500 ETF has been producing on average 13.6% return. Does a property generate such a turn? Probably not in many markets.

2 ways of learning

There are 2 ways of learning something

1. by making mistakes yourself, or

2. by learning from other people’s mistakes

You decide which route you want to take. And when it comes to investment, there is only one consequence of making mistakes — losing your hard-earned money.

So we hope you enjoyed this session of Fast Track Money and avoid all the mistakes mentioned in the video. Subscribe to the YouTube channel for more videos or follow us on

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