10 Lessons I Learned as an Investment Analyst

Over the last eighteen years, I have provided investment research to an array of institutions and financial advisors. I have worked on portfolios that were over $100 million as well as those that were less than $100,000. Along the way, I have made some great investment decisions, but I have made some mistakes as well. We all make mistakes from time to time no matter what your portfolio size. They always say hindsight is 20/20 right? It’s easy to see afterward where you went wrong but the best thing is to learn from your mistakes and the mistakes of others. Here are ten mistakes I have experienced or observed throughout my career that you need to know.

As an analyst, part of my work included a cost analysis of portfolios to see how much money investors were paying in fees and just how much those fees were detracting from portfolio growth over time. Folks, it’s a lot!

Because individuals and institutions alike didn’t take the time to compare, negotiate, or regularly review fees they would stack up. Before buying anything compare similar investments, or the asset category average, for fees and see if your choice is on the high end. See if there is something just as good that can save you some money. It’s well worth your time!

The key here is that you need to set rules for yourself. If your investment is underperforming, decide how long you will wait for the investment to at least perform in line with peers or an index and how long you will give to see it outperform. Remember you pay a fee, so your investment needs to do better than an index.

Setting rules will help you keep emotions out of a tough decision. A rule I follow is to give two consecutive quarters (6 months), and if the investment continues to underperform its peers and a market benchmark, then it is time to look for a replacement. It is in your best interest to understand why the investment is underperforming before selling. You might learn something. Get on the phone with the investment firm and get an explanation. There better be a good one. You also need to understand any tax implications before selling. It may take some time to get out of an investment but don’t be afraid to put in the work if it benefits you in the long run.

Be careful chasing returns. Remember there is usually a cost associated with buying and selling securities and there may even be a fee by the investment manager to redeem part of your account. These all add up quickly. No single investment is the best 100% of the time. Set a target return goal, after fees, and every six months or so review your accounts to make sure you are meeting your goal. If not, then look where you can improve. Chasing the best performers will only cause you stress and lost money.

Wow, is it ever! This means over thinking your decisions, and when it comes to money we do it a lot! A lot of investors get caught up in the investment “studies” out there but remember the context of those studies and their purpose. Think about your specific situation and how the action you are contemplating will positively and negatively impact you. You are unique and what works for one person doesn’t mean it will work for everyone else.

I am a huge fan of creating a checklist when it comes to making investment decisions and reviewing your accounts (see this post to get you started). Once all the boxes are checked, you are done. Set thresholds for how much in taxes you can afford to pay each year if you have to sell something. Set thresholds for investment underperformance. Set thresholds for how much a winner is allowed to run so that your asset allocation doesn’t get out of whack. It is all about structure, and once it is in place, the paralysis becomes less of an issue. There will be times you may need to be flexible with your rules but remember why they are in place. Every week read some investment news so that you can stay aware of market trends. The more knowledgeable you are, the more confident you will be about your decisions.

There is nothing worse than an over spender ruining the investment plan. All that hard work and then an investor needs to take a withdrawal from an investment account to pay for something. Taxes may need to be paid, and early withdrawal penalties may also be charged. Keep your investment accounts sacred, get on a budget, and have plenty of cash accessible for emergencies or unexpected purchases. Getting your spending in order is a MUST! Come on, you know this one, but I have seen it time and time again.

Remember you are you and other people will have different ideas and goals than you! I’ll repeat this, what is right for someone else may not be right for you. Please be wary of social media opinions…I have seen some doozies! Wanting advice from a parent or friend about an investment is fine, but it is not a substitute for doing your research. You need to know and understand how your money is invested. There is no shortcut here.

Stop waiting for your employer to make an investment decision. Many people wait to invest until they have a retirement plan available at work and still many then wait and wait to begin that account. Now, more employers are automatically enrolling you in their retirement plan. They’ll even automatically put you in a default non-cash investment choice. You may need to go in and adjust your contributions and investment selections if this happens. Why do they do this? Because you aren’t opening these accounts on your own! Your employer knows how vital it is for you to save for retirement and they know your sense of financial security leads to happiness among individuals.

We are thankful to all those employers who spend the time and money making a retirement plan available. However, they don’t have all the answers for you. They cannot give you any investment advice. Your employer makes it easy to open an account, but the rest is up to you. Again, you have to own it and take charge of your investments.

If you are just starting with investing, please consider avoiding the idea of investing in only one stock or two. Get comfortable with the markets and their movements by beginning with a mutual fund or ETF. This will help keep you exposed to the potential of the market without draining you emotionally by the price swings of a single stock.

Putting off looking at your investments and financial state isn’t the answer. Don’t be afraid of the unknown. Start simple and start reading a little investment news each day. You’ll realize there are a lot of people who like to hear themselves talk and really this doesn’t have to be an intimidating subject. You might even like it a little!

Remember there is more to investing than just stocks and bonds. It is essential to have a variety of investments so that your growth is smooth and steady. Think outside of the stock and bond market with other investments that increase in value over time like real estate, precious metals, oil and gas, agriculture, and even art.

So many people avoid beginning an investment plan or managing their investments because they find it overwhelming and tedious. Take small steps to learn more and you will feel confident about your decisions. If you feel like you want to hire a professional to help you then do that if it is worth the cost. Even if you don’t hire someone you can do this on your own until your assets grow to a significant level. Remember a lot of people in finance like to hear themselves talk so stick to the basics and remember your “rules” or lists that you have designed for your investment strategy. Set at least an annual review to look at performance and fees of your investments and make an action list for those things that need changing. Staying organized is the key to feeling like you got this!

Hopefully, these ten lessons can help you avoid making a few money mistakes. None of this means anything if you don’t start investing and saving for your goals. Start today by opening a new investment account or increase your contributions to an existing one if you can. Read this post for more information about what account type is right for you and begin looking at mutual funds or ETFs to fit your investment needs (review our other post about how to select the best ones). You got this!

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