As 2021 draws to a close, I reflected on my investing journey over the past year to look for my lessons learnt.
While taking note of the mistakes that I’ve made and the realisations I’ve come to after putting more thought into my investment decisions, I thought it was apt to share them here.
Hopefully, you’ll be able to learn something to help you in your own investing journey down the road and not repeat the same mistakes as me.
1: Invisible Fees
Fees are a huge part of investing because we always want to minimise the fees we pay in order to maximise our profits.
I used to think that brokers that charge little or no fees for their services are better than brokers that charge fees for the same service.
But what’s not so obvious is that usually, when a broker is able to provide such a service for free, the fee is actually already priced into the service being provided.
For example, when it comes to FX conversion, Interactive Brokers (IBKR) charges a fee of 2 USD while Tiger Brokers and Moomoo don’t charge any fees.
Naturally, I assumed that converting currencies on Tiger Brokers is cheaper than on IBKR.
But this isn’t necessarily the case due to the different FX rates that both brokers offer.
By paying the FX conversion fee with IBKR, you get the best conversion rates for FX that you’ll find around.
On the other hand, while you don’t pay any upfront fees with Tiger Brokers/Moomoo, their rates are ~0.3% worse than IBKR’s.
Depending on the amount of money you’re converting, one broker is cheaper than the other.
I went into more detail about this in this post.
I used to think that the impact of FX conversion rates are minimal, and they are – but only if you convert small amounts.
In an effort to minimise my investing fees, I started paying more attention to FX rates, and this is one of the reasons why I started using IBKR as my broker.
2: Do Your Due Diligence
It’s probably always a good idea to do your due diligence (DYDD) before you do anything, but even more so when it comes to investing.
Typically, when people say “DYDD”, they refer to doing proper analysis before taking a position in a particular investment.
And while this is something that all investors should do, I think it’s worth applying this concept to the entire process of making an investment.
That is, finding out the best way to make the investment – from funding your account with fiat currency to owning the investment in your account and maybe even to withdrawing your profits if and when you choose to sell the investment.
The reason I think this is important is that fees are rampant in the financial world and if you’re not careful, you could incur significant losses through fees.
Want to transfer FX between your bank and brokerage accounts to avoid conversion fees and losses?
Sure, but you may incur telegraphic transfer fees.
Started investing but realised you have to pay a fee every month?
Maybe your broker/robo-advisor of choice charges a custodian fee.
Chose IBKR for their low commissions?
If you didn’t configure your account properly, you don’t enjoy the low commissions you thought you signed up for.
Personally, I always try to learn all such nuances before doing anything, but I did get hit by a $10 fee from DBS when I tried to withdraw USD from my IBKR account to my Multiplier account.
I thought it’d be free since IBKR SG uses a DBS bank account and FX deposits are free, but apparently, it doesn’t work that way.
This served as a reminder that I should always check rather than make assumptions.
3: Always Have Cash On Hand
There have been several times since the start of my investing journey where I wanted to “buy the dip” and take advantage of market corrections but didn’t have any/much cash to do so.
This was primarily because I had invested all of the money that I set aside for investing.
As a result, I wasn’t able to take full advantage of such opportunities in the market, which is rather disappointing for anyone looking to grow their wealth.
This is why I think it’s good to prepare a war chest – a sum of funds set aside to be deployed when a good opportunity comes along.
Not everyone may agree with this since this means intentionally holding back your investments with the hope that the market will dip in the near future.
There is some inherent opportunity cost to this strategy, but I think what’s important is to try and strike a balance.
While continuing to invest regularly, I also set aside a small sum of money in this war chest.
This way, I get to enjoy market gains and I’ll also be ready to take advantage of a market crash when it comes.
But if you belong to the school of thought that wants to minimise cash drag, this may not be a suitable strategy for you, and that’s fine.
4: Reevaluate Your Portfolio
Most of the time, we make investment decisions based on our risk appetite and investment goals.
But these things may change over time due to the influence of other factors and circumstances, which should, in turn, be reflected in our investment portfolio as well.
Reevaluating your portfolio periodically can help to align your portfolio with your risk appetite and investment goals so that you feel comfortable with your investments.
Recently, this helped me realise that REITs were not the best investment to own in my portfolio due to their nature as an asset class.
Even though they were appropriate for me when I was just starting my investing journey, things have changed over the past 2 years.
Thus, I sold them in preference for more aggressive equities which better align with my investment goal of building long-term wealth.
If you’d like to read more about my thought process behind this decision, you can check out this post.
5: Accept Your Decisions
Finally, it’s important to come to terms with your investing decisions -regardless of whether they’re good or bad.
Maybe you bought into a stock/ETF just before it crashed.
Maybe you sold a stock/ETF just before it spiked.
When things like this happen, it’s easy to get dispirited and discouraged.
Hindsight is always going to be 20/20 and if things happen in a way that is opposite to what we expected, it’s easy to feel like it was a bad decision.
But if things turn out just as we expected or better, it feels like it was a great decision.
The truth is that at the time we made the decision, we believed it was the right decision to make for one reason or another.
We knew that there was a risk, a chance that we could be wrong, but we did it anyway.
Regardless of the outcome, we can’t change the fact that we made the decision.
Rather than focusing on the result and how it makes us feel, we should accept the decision that we made and reflect on what led us to that decision.
If the result wasn’t what we expected, were there any flaws in our thought process before making the decision?
If there were, identify them and learn how to avoid making them in future.
Otherwise, there’s no reason to feel bad – perhaps we were simply unlucky.
If the result was better than we expected, were there any particular insights that we had to make the decision that could’ve led to this result?
If there were, identify them and learn how to replicate them again in future.
Otherwise, there’s no reason to feel good – perhaps we were simply lucky.
Personally, I’ve encountered times when I invested before prices plummeted and before prices skyrocketed.
While I did initially feel disappointed/proud regarding the decisions I made, I knew that there was no way I could’ve predicted what was going to happen.
Furthermore, the decisions I made were based on long-term goals, not short-term ones.
So it makes sense that I shouldn’t need to react to short-term results and instead focus on long-term results.
This helps me come to terms with my decisions regardless of the outcomes and move on with my life.
Paying attention to invisible fees like FX rates can help to reduce your investing fees.
Doing your due diligence not just on stocks/ETFs but on the entire investing process can help you avoid paying unnecessary fees.
Keeping cash on hand allows you to take advantage of a market correction when it comes.
Reevaluating your portfolio, risk appetite, and investment goals ensure that they are always aligned and within your level of comfort.
Coming to terms with your investing decisions and recognising how they may or may not have led to their respective outcomes can help us focus on what matters and move on with our daily lives.
These are some of the things I took away from my investing journey in 2021, and hopefully, you’ll find them helpful in your own journey down the road.
What are some of your takeaways from 2021? Let me know in the comments below!