Once in a while, you will sit back and do some retrospective on different things.
I was recently reflecting on my investing journey during my 20s and thought that it would be good for me to document them down in this blog for my future reference and also to help the younger readers avoid making the same mistakes that I did.
So here it goes.
1) Underinvesting in indexes
I would say that underinvesting in indexes is right at the very top of my list here. During my 20s, I spent countless hours reading and absorbing different investment or financial related information I could have my hands on. Articles like how to evaluate a company's financial position, understand their price-to-stock ratio etc are my weekly reads. As I don't have a formal financial academic background, I spent quite a bit of my leisure time trying to understand the financial concepts and begin deep diving into various companies' financial or share price performance history. Now, it all sounds like nothing's wrong here until you start to make the costly mistake of investing in only the companies which you have researched...
During my early part of the career, I was working in an O&G related field so investing in O&G related companies was actually one of the few things I did. Now, we all know that the oil prices kinda peaked in 2014 and were on a downhill in the few years after. I was investing at the height of the oil prices then. It wasn't that bad of a mistake until you realise that several positions in your portfolio are all O&G related.
I was simply spending too much time trying to seek the alpha here, and that's the problem.
During your 20s, you will always think that you have the capability to beat the index and your confidence in beating the index somehow grows with the amount of reading you do. That was absolutely the worst mistake.
If I were to invest more in the indexes since the 20s, I am pretty sure that my portfolio could be in a better position than now. Investing in indexes like the S&P 500 is an efficient way to diversify your risks and ensure that your portfolio grow/compound with the economy. I have simply spent way too much time trying to seek the alpha during the 20s. I could have spent that amount of time learning a new skill like learning a musical instrument, and just regularly DCAed in the index. If I were to do so, I will be perhaps a bit more musically trained and richer.
The interesting thing about investing is that most people think that they have a higher chance of beating the market if they spend more time in it. Most of the time, the contrary is actually true. You should just invest in the index and go on with your life. Investing should be as boring as watching paint dry on the wall.
2) Not investing in the right indexes
Not only was I underinvesting in the indexes during my 20s, I was also not investing much in the right index. In my initial investing days, I invested more in the Straits Times Index (STI) than more diversified indexes like IWDA, URTH or SPY. This proves to be costly as we all know the returns of the STI trailed these indexes. It's normal to want to invest in your country's index but it's important to understand that the world is more than just your country. Just imagine what could have happened to you if you were a Japanese and you only invested in your country's index for the past 2 to 3 decades. You could have suffered poor portfolio growth in those years. Hence, it's important to take the risk and invest in other geographical indexes, especially those diversified ones like the IWDA or URTH.
On a side note, it's probably also important to learn to put your money in different brokers as it's always good to diversify the risks. You probably do not want your entire portfolio to be in the hands of just one broker. I personally started to also use Webull as one of my stock brokerage brokers. They have attractive offers to entice new users to sign up with them. They recently have an attractive June promotion where you get 4-20 free shares (each worth USD3-USD1000 of TSLA, AAPL, MSFT, GOOG free shares) if you fund SGD 100 or more in your new account and hold the deposit for 30 days. If that entices you, please sign up here.
3) Not learning how to build a diversified portfolio with the right tools
While I spent so much of my time in my 20s trying to learn all the financial or stock related information, that is one area which I grossly underinvested my time in. That is portfolio management.
Portfolio management in the form of understanding how to build a diversified portfolio should be the number one thing you do when you begin investing. I have seen so many people (including myself) who invest in stocks just because they like the company. Just look at people around you, how many are investing in TSLA, AAPL, NVDA etc just because they love the companies and their products. Investing in individual companies with no concept of portfolio management is just like buying ingredients first without knowing what to bake. It just doesn't make sense.
You cannot adopt a bottom top approach in your investing journey. You need to adopt a top bottom approach. First, think of a realistic goal which you want to hit- is it a 9% CAGR? Next, think of the amount of risks you are willing to take- will a drawdown of 30% kill you and make you swear off investing? From these answers, you will then know what kind of portfolio to build and you could then identify the right stocks to invest in.
The best tool to get started is portfolio visualizer. I have written enough about it throughout my blog. It's the best free tool you can use to better simulate your portfolio choices and identify the right information about your portfolio. Are the constituents in your portfolio having a high co-variance in terms of performance? If yes, then you should be rebooking at your choices as there is no point in building a portfolio when all the constituents behave similarly with no diversification. Go try out the tool. It will change your investing journey.
4) Not buying a BTO early
I am of the opinion that having a BTO is the best step in your property journey.. if you buy it early enough in your life. See, BTO is subsidised housing which almost always guarantees you profits when you sell it upon MOP. The only issue with it is that it requires great patience from you. You need to wait 3-4 years for it to be built before waiting another 5 years for it to reach its' MOP. This means that it could be a 8-9 years journey altogether. If you were to buy a BTO in your late twenties, you probably have to wait till mid-late thirties before you sell it. That could put you at a slight disadvantage in your home asset progression journey when you buy your next property as you might not be able to get as much loan as you like to since the loan tenure would have to be shorter. However, things are different if you were to buy a BTO in your early twenties. This gives you ample time to enjoy the benefits of what BTO could bring to you in terms of financials. Aside from the high possibility of getting a profit when you eventually sell it, you are able to also set aside money every month for your other investment needs like equities as the monthly mortgage for a BTO is usually very affordable for young couples. These factors certainly put you in a very advantageous situation.
Aside from BTO, I do think EC is also another great choice. I still remember that I almost bought a new launch EC during my mid 20s. If I had done so then, I am pretty sure I would be faster in my home asset progression journey.
By the time I successfully balloted for a BTO, I was already nearing my 30s and I then decided to give up on the BTO choice to go for a private property instead to speed up my home asset progression process in relation to my age. It was definitely not a bad choice in hindsight, but I do think that I could have gained more if I had gotten a BTO right at my early twenties with my wife before proceeding to purchase private properties.
5) Not investing in high risk, high returns assets
Now, this seems ironic especially when I was advocating investing in indexes right at the beginning of this article. Let me explain myself.
When you are in your 20s, time is definitely on your side. The best thing anyone could wish for in their investing journey is to have enough time or runway for their portfolio to compound. While it's important to put the majority of your funds in more stable assets like the indexes, it also pays to put a little of your funds in high risk assets like Bitcoin. For regular readers, you know that I have been an advocate of Bitcoin. But I wasn't one in my twenties. In hindsight, I should have put a really small percentage of my funds (maybe 10%) in Bitcoin during my twenties. That outperformance of Bitcoin could have also put me in a better financial position today.
For the young readers, I hope these pointers help you. If someone were to tell me these pointers when I am in my 20s, I might be able to shave off 10 years from my retirement age :)
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