18 Years of ETF Investing: My Worst Mistakes (European Investor)

About this video

• Video Title: 18 Years of ETF Investing: My Worst Mistakes (European Investor)
• Channel: Tom Crosshill
• Speakers: Tom Crosshill
• Duration: 17:02

Overview

This video discusses common mistakes made by investors, particularly those in Europe, over 18 years of ETF investing. The speaker shares personal experiences and observations to highlight pitfalls such as trading instead of investing, not having a financial cushion, under-investing, overestimating risk, picking individual stocks, chasing hot stocks or dividends, following American investment advice without considering local regulations, choosing the wrong ETFs, and ignoring taxes.

Key takeaways

• Trading vs. Investing: Trading is characterized by quick bets with high time commitment and a high probability of losing money, whereas investing involves buying assets that grow in value and generate income over the long term, freeing up time for other pursuits.
• Financial Safety Net: It's crucial to maintain a cash cushion to avoid being forced to sell investments at unfavorable times during financial emergencies.
• Sufficient Investment Amount: Investing small amounts yields minimal returns; significant wealth accumulation requires investing a substantial portion of one's income.
• Risk Perception: Despite market crashes being scary, historical data shows that the stock market generally recovers, making fear of risk a greater deterrent to investing than actual risk.
• Individual Stocks vs. ETFs: Picking individual stocks is highly risky, as many fail or underperform, while the market's overall success is driven by a few top performers. ETFs and index funds offer diversification and are generally a safer approach for most investors.
• Chasing Trends: Hot stocks or top-performing companies of today may not be future winners, and chasing them often means buying at inflated prices.
• European Investment Context: Investors in Europe should be wary of blindly following American investment advice due to differences in regulations, tax rules, and available products. It's essential to use local brokerages and invest in ETFs compliant with European regulations.
• ETF Selection: Beyond just choosing an S&P 500 ETF, investors need a strategy considering asset allocation (stocks vs. bonds) and geographical diversification. Technical aspects like choosing accumulating vs. distributing ETFs and domicile (Ireland vs. Luxembourg) can impact tax efficiency.
• Dividends vs. Growth: Chasing dividends can be detrimental due to taxes and the fact that many high-dividend stocks have poor growth prospects. Focusing on overall growth is often more beneficial.
• Tax Implications: Understanding and adhering to local tax laws for investments is critical to avoid unexpected financial penalties.
• Market Timing: Attempting to time the market by buying low and selling high is largely unsuccessful and stressful, with regular, consistent investing being a more effective strategy.
• High Fees and Lack of Understanding: Be cautious of paying high fees for investment advice or portfolios that are not fully understood, as these often lead to poor results and increased stress.