When investing, if all you do is get average returns (historical stockmarket average is 8-10% pa) and avoid common mistakes, your portfolio will compound very handsomely over the long term.
If you try to shoot the lights out with every investment you make, you’ll also have a lot of blow-outs.
Average x Compounded = Spectacular over the long term
My Rookie Mistake
Today, I want to share one of my early investment mistakes so you might avoid doing the same. That mistake was a case of falling for marketing spin.
When starting out in professional investment management my youthful enthusiasm occasionally drew me into opportunities with particularly slick marketing.
One time, my team were looking into a new IPO (initial public offering) of shares in a media company and I was hooked by the messaging – i.e. the marketing gloss.
So much that it overtook the rational analysis I was supposed to be undertaking to de-risk the investment opportunity. I pushed my team hard to participate in the IPO.
My experienced boss and mentor Steve knew all about such marketing tactics.
He taught me that in finance and investing (just like with other industries) it’s often the marketing that makes the sale rather than the quality of the investment itself.
This applies across asset classes including stocks, funds, development loans or property (estate agent tactics!).
My boss Steve often reminded me of the old adage …
If it sounds to good to be true, it often is
Avoid expensive Funds
An example in the investment space: consider the existence and success of “active” fund managers (you’ll recognise them by their adverts on billboards, magazines etc).
Active fund managers aim to beat the market on a consistent basis – as opposed to “passive” managers (such as ETFs) which aim to only match, or track the market on a consistent basis.
As you might expect, active funds charge investors a high fee for their ambitious plans whereas passive tracker funds or ETFs charge low fees.
Now, look at the evidence below showing how 85% of active fund managers underperform the market – i.e. they underperform passive funds and ETFs (which delivered positive, inflation-beating returns)
Despite this under-performance, active fund managers still thrive and attract investors – and charge premium fees!
How? … Great marketing is how!
The key message: if you differentiate between style and substance you’ll make the best returns, most consistently, and with reduced risk.
For more about underperforming funds, take a look at this graphic measuring the consistent underperformance of active fund managers.
Simple Mistakes to Avoid when starting off …
1. If it sounds to good to be true, it often is. Be mildly sceptical
2. Fund and wealth managers are primarily accountable to their shareholders vs those who buy their services (hence the high fees)
3. Think about the marketing messages being used. Certain words and images are tried-and-tested marketing tactics designed to make us buy (or invest)
This applies to any asset class including stocks, funds, property-related investments or pensions.
Oh .. and what about that IPO? It flopped on day one of course!
Embarrassing for my youthful enthusiasm and it could have damaged my career. But I learnt fast and always retained a healthy dose of scepticism from that day on.
In the investment academy, you’ll learn exactly how to filter out marketing bias and avoid many other common mistakes that people make all the time.
All content in the academy draws upon my own professional knowledge, experience and learnings along the way.
- Time in the Markets always beats timing the markets
- Stay Diversified
- Minimise those leakages: Fees, Inflation, and Taxes
- Financial Markets are a great source of recurring income
- ETFs, Balanced Funds and Options achieve all the above
- Being educated helps you outperform 99% of the population
… to ensure your investments work for YOUR financial freedom (not someone else’s)
For more guidance, our Investment Academy will help you implement all of this in a step-by-step way.
Thousands of people have learnt how to diversify and pound-cost-average into low-cost, set-and-forget ETFs & Funds for inflation-beating growth. And Options to create recurring income.
– Don’t take the above as advice as it may not apply to you personally
– Your Capital is at Risk
– You may not be covered by the FSCS
– Anything mentioned in a podcast or in a previous article was valid at that time and may not continue to be now