My Stocks and Shares ISA has been motoring along quite nicely recently, helped by stocks such as Nvidia, Microsoft, and Rightmove (which are all near their all-time highs). But it hasn’t always been this way. In the past, I’ve made a few big mistakes that have hurt my wealth – and potential retirement savings. Here’s a look at some of the worst ones I’ve made…
Looking back, not ahead
One major mistake I made when I first started investing in an ISA was loading up on the stocks of mature FTSE 100 companies with little growth potential (Shell, WPP). A lot of these companies had enjoyed success in the past but had stopped growing (you could say they were ‘yesterday’s heroes’).
The lack of revenue and earnings growth was reflected in my returns. In general, they were very average (despite the fact that I bought at low valuations and picked up some juicy dividend payments).
The lesson for me here was that it’s crucial to focus on a company’s growth prospects when investing in individual stocks for the long term. For those looking to generate attractive returns, it’s important to look forward and not back.
Ignoring international opportunities
Ignoring international stocks was also a mistake. This impacted my long-term returns. Early on in my ISA days, my portfolio was 100% invested in British stocks. I figured that UK shares were the best bet for me because I was a UK investor.
This ‘home bias’ backfired on me as the UK market underperformed other major markets such as the US significantly (even though it has been a strong performer more recently). There have been plenty of great opportunities in the UK market of course and I’ve had plenty of UK winners, but I could have done better by adding some international stocks to my portfolio.
If I’d bought some blue-chip S&P 500 growth stocks like Apple and Microsoft a decade ago, I’d be sitting on huge gains now. And my ISA balance would be a lot higher.
Not paying up for growth
Finally, another mistake I made was not paying up for growth potential. This backfired spectacularly. Take Amazon (NASDAQ: AMZN), for example. I remember looking at this growth stock in mid-2017 when its price-to-earnings (P/E) ratio was above 200 and thinking to myself ‘no way – that stock is way too expensive’.
In hindsight, I should have just bought the stock, despite the high earnings multiple. Since then, it’s risen more than four-fold as revenues and profits have surged, meaning I could have potentially quadrupled my initial investment.
I did eventually buy Amazon stock for my portfolio in 2020 (and have bought more since then). And it has generated solid returns for me. I could have made a lot more money by buying it earlier though. Ultimately, not buying the stock because it had a high valuation wasn’t the right move.
I’ll point out that I still see a lot of potential in Amazon today (and believe that it’s worth considering at its current valuation). A consumer/business slowdown’s a risk in the near term but, in the long run, I expect this e-commerce and cloud computing company to get much bigger as the world becomes more digital.
