My biggest investing mistake, and how you can avoid it

I’ve made plenty of mistakes in my investment career, but this one is undoubtedly the most costly.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’ve made all the common investing mistakes in my time and here are just some of them.

Too greedy

Never buy soaring growth stocks that have already risen to inflated values? I’ve done that. Some apparently inflated valuations turn out to be cheap and the shares keep rising — but not mine.

I made that mistake early on, in my growth investor phase. The strategy did no better than an index tracker overall, but with more heartache.

Become too attached to a stock and hang on to it despite the mounting evidence against it? I’ve been there too, letting emotional attachment triumph over cold hard fundamentals, and have lost money.

I’ve concentrated on buying and forgot to learn when to sell, and I’ve even been influenced by share price charts in the past. Name a mistake, and I’ve probably made it.

But even with all that, I’ve easily managed to beat cash saved in the bank, and I’ve had a lot of fun while doing it. And my biggest mistake is… not starting a lot sooner.

Time is your best friend

The thing is, it’s investing your cash in shares, reinvesting dividends every year, and doing that for decades that brings you success.

I was in quite well-paid jobs right from leaving university, but I spent my money and enjoyed it rather than stashing some away every month and buying shares. And it wasn’t until around 10 years later that I learned about the long-term prospects for the stock market. But what difference might my lost decade have made?

Let’s compare two individuals. One starts investing £500 per month in the stock market, and manages an average return of 6% per year. They start early and continue for 30 years. 

Over that time, assuming every year’s profits are reinvested and compounded (and not taken as dividends and spent), our young starter will have accumulated a nest egg to the value of approximately £490,000.

Our second investor, like me, wasted 10 years of investing opportunity before the light bulb switched on. How much do you think they’d need to invest every month to match our early-starter hero?

You might be shocked to learn that even investing twice as much every month, for the shortened period of 20 years, still wouldn’t quite make it. £1,000 per month invested in shares for that period, assuming the same 6% annual return, would bag approximately £456,000.

Sobering comparison

That’s a shortfall of £34,000, but the biggest surprise comes from comparing the total cash invested.

Our first investor has plonked down £500 per month for 30 years, which amounts to a total of £180,000 — and turning that into £490,000 is very pleasing result.

But our second investor, who has been stashing away twice as much money every month for 20 years, will have invested a total of £240,000. It will have cost them a full 50% more to achieve a poorer result.

The lesson is clear. You should start saving money every month and invest it in shares as soon as you can — and keep on doing so every month, while buying even more shares with any dividends you earn.

If you’re in the position I was in, or that of our second example investor here, you obviously can’t go back in time and start again. But you can start today and not waste any more time.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »

Investing For Beginners

How I’d aim to grow my Stocks & Shares ISA from £20k to £1m

Jon Smith explains how diversification and focusing on sectors for the future can help grow his Stocks and Shares ISA.

Read more »