Guest Post: Learning from my Financial Mistakes

I often find that it is useful to hold up a mirror to myself and reflect upon my strengths and weaknesses on a regular basis.

In that spirit, I have decided to pen this article highlighting the two largest financial mistakes I have made during my decade of investing.

Mistake 1: Observing the money taboo

As a society, we do not enjoy discussing our finances. This particularly applies to debt, where this report suggests that half of Britons downplay debts or keep them entirely secret from family and friends.

Often, this is done out of good conscience.

“I wouldn’t want them to worry, this is my problem to deal with”.

However, I have learned the hard way that the silence around money can be toxic.

When I was studying towards financial adviser qualifications almost ten years ago, my parents sought the advice of a financial adviser.

Despite the subject of my study, I didn’t inquire into their situation or the advice given. I acknowledged the taboo around talking about money. I felt that it would look impertinent or rude for a child to query the investment decisions of a parent.

I observed the taboo at my parent’s peril. After they had subscribed to the new investment approach promoted by the adviser, they actually handed me the brochure, expecting me to take an interest.

I became very interested, but not for the reason they expected. I quickly skimmed the fund brochure and began looking at the fees, and I experienced a huge shock. The fund charged 5% upfront and 2.5% annually for a basic investment strategy.

By any measure, this was an investment designed to leech money away from my parent’s retirement savings over the course of the next twenty years.

If I had begun a pro-active discussion early enough, I could have steered my parents away from this expensive fund. This was back in 2011, before the essential RDR reforms which saw financial advisers banned from earning commissions from promoting costly products.

My parents left this fund on my advice a few years later, but not before losing at least 10% of their savings in avoidable fees – a number which equated to several months of pay.

Mistake 2: Growing my investment portfolio in the wrong direction

As a keen investor setting out on my journey of discovery, I was reading widely and constantly learning about different investment options.

This actually began to work against my investment objectives, because I actioned far too much of what I was absorbing.

I was treating my investment portfolio in the same way that a stamp collector would treat their collection of stamps. I was blurring the lines between pursuing a hobby, and accumulating wealth.

I would seek out and buy exotic and interesting investments. One by one, these were added to my portfolio, creating a cumbersome mess.

The principle of diversification encourages investors to look further afield. This provided me with a rationalisation to continue expanding my portfolio sideways for several years. I allocated too much of my wealth to obscure products and accounts, rather than diversifying across good companies and funds in traditional asset classes such as developed country equities and corporate bonds.

My portfolio reached a stage whereby I could no longer drip-feed money across all investments without incurring £50+ in fees. This discouraged me from investing often, and from spreading new money wisely. In other words, my poor attempt at diversification actually began encouraging me to concentrate my money in a few investments. This was counter-productive to say the least!

I learned from this mistake. In fact, I now invest in a single equity fund, which also includes corporate bonds. I have found that this provides me with sufficient diversification, while still being practical and easy to monitor.

About the Author:

Simon Oates contributes to Financial Expert, a blog which takes readers through a curriculum of articles to encourage a broad understanding of investing topics, such as how to invest in property and how to spot investment scams.