Investing money: how to avoid my three biggest mistakes

These were my 3 biggest mistakes when investing – and here’s how you can avoid them

Especially when money is at stake, mistakes and losses are a painful process. So painful that some people prefer not to invest because of the risk of loss. Thus, in 2020, there were a total of 5.3 million people who invested their money in the stock market. In contrast, however, 7.3 million people regularly play the lottery. The regular loss of about 10 euros when filling out a lottery ticket does not seem as painful and risky to people as the possible loss on the stock market. What risk means, I have already written about it here. The bottom line is that I don’t know the outcome of my deployment. This actually applies to playing the lottery and to investing.

In the former case, however, I have to rely on pure luck, in the latter case I can at least reduce my risk with knowledge, a little research and broad diversification. For most this sounds too complicated. You are afraid of making mistakes. Because then I can’t blame others, but have to take responsibility for my own failures.

From your own failure

That’s exactly what I want to write about in this column: about my own failures and mistakes when investing. My mistakes. How do I define the biggest mistakes?? Are they the ones with the most losses or are they the ones I find the most painful? Or the ones I’m perhaps a little ashamed of, because it wasn’t bad luck that was involved, but my own failure?

When I first started looking at investing, I read about ETFs. In the book "Borse leicht verstandlich" Judith Engst and Rolf Morrien write how the stock market works, why the stock market is not dangerous and how the DAX has developed in the last years. The projections of what all could have gone wrong with 1.000 euros could have happened and how much money you could make with it convinced me. So I opened a stock portfolio and set up an ETF savings plan. On the DAX.

This is why you should not invest in just one market

An ETF on the DAX is a mistake in many respects. At least, if you only invest in one DAX-ETF. Because this is already a violation of one of the most important rules of investing: Never put all your eggs in one basket. When the DAX consisted of 30 companies instead of 40 (that is, until two weeks ago), it included four companies from the automotive sector at once: BMW, Daimler, Volkswagen and Continental. If the automotive industry goes bad, the economy goes bad. Also because every third job in Germany depends on it. According to the magazine "€uro am Sonntag", about one third of the total turnover of the DAX members was linked to the automotive industry. Honestly, I did not think about it and started to invest.

I was lucky, because as you may know, the German economy has been doing quite well over the last eight years – despite the diesel scandal. Nevertheless, this was a mistake: I simply invested without thinking about diversification and economic dependencies. Engst and Morrien had convinced me. I also wanted to achieve the return, which they exemplarily explained with the DAX.

Nowadays, when people ask me how they should invest, I tell them that they first need to come up with a strategy and invest in as many different and unrelated industries in different regions as possible. At the end of the day, a financial or corona crisis can bring down entire markets. Then the motto is to take a deep breath and stay seated.

What stock trading and soccer have in common

Another mistake I could mention was my investment in Wirecard stock. Here I simply got carried away by the hype, as some people do today with Tesla. Unlike Tesla, however, the numbers looked much better, and this time at least I did my research: the company’s value had tripled in two years, sales doubled, and profits were 347 million euros in 2018.

On top of that, this was a global company in a high-growth market and collaborations with Alipay and WeChat Pay, and based in "my" city of Munich. I was a bit proud of this, just as soccer fans are when their favorite club wins. You don’t contribute anything, of course, but you have such a strong "home bias" that you just feel good when a success comes along. The numbers were right, the future prospects looked good and, of course, you knew people who worked there. What could have gone wrong? We all know the answer to this question.

Of course, you can’t see an accounting scandal until it’s made public. But I could also have listened to the critical voices. There was namely also a negative reporting of short sellers, who had bet accordingly on falling prices. Then in 2019, the Financial Times reported on financial accounting discrepancies in the global company’s Asian business. The financial regulator BaFin reacted in both cases – against the short sellers and journalists. I was reassured.

My learning from this: When buying shares, always research in all directions and take critics seriously.

The 3.000 Euro mistake

Now we come to the most expensive mistake. The one that really annoys me and cost me the most money, the one where I also get a little envious when I read that others haven’t made this mistake. And at the same time, the mistake I warn against most often.

When I was a student, I worked a lot. Partly I had several jobs at the same time and let the study rather besides run. It was important for me to earn money. Money, however, that I did not save or invest, but spent with both hands. For clothes, for trips and especially for going out. At that time, I could have easily raised 50 euros a month to invest it. For Munich students this may sound like little money. But I studied in Leipzig, where my warm rent was 200 euros.

50 Euro, which I would have invested regularly in a classic ishares MSCI World back in 2009, was 6 today minus all costs and fees.670.50 euros. Whereby 2.880 Euro would have been raised by myself. Even minus taxes I would have doubled my money. Would have.

So if you are still playing with the idea whether you should invest or not – the answer is: Yes, invest your money. No matter how little it is. In 10 or 20 years, you’ll be glad you did. I met so far still nobody, who invested broadly and regretted it.

Margarethe Honisch is a financial blogger and book author. On her website Fortunalista and her eponymous Instagram account she gives tips on retirement planning and investing. For Business Insider, she writes the column "Making more out of money".

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