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

Summary

In this video, the speaker shares critical financial mistakes and lessons learned from their career in investing and finance. They discuss the dangers of day trading, the importance of having a financial cushion, the need for consistent and substantial investments, and the pitfalls of chasing hot stocks and overestimating risks. The speaker also emphasizes the importance of proper tax planning, choosing the right ETFs, and avoiding high-fee financial advice. Ultimately, the message is clear: successful investing requires patience, knowledge, and a disciplined, long-term approach.

Takeaways

• 😀 Trading is risky and often leads to losses, with most day traders losing money due to the unpredictable nature of quick bets.
• 😀 Instead of trading, it's better to invest long-term in valuable assets like stocks or real estate that grow over time and provide consistent cash flow.
• 😀 Always keep a safety cushion of cash for emergencies to avoid being forced to sell investments at the wrong time.
• 😀 Investing small amounts like €20 a month won't lead to significant wealth. To see real results, you need to invest larger amounts over time.
• 😀 Fear of market crashes shouldn't stop you from investing. The stock market historically grows over the long term, despite occasional drops.
• 😀 Picking individual stocks is risky and often results in losses. It’s better to invest in diversified ETFs or index funds.
• 😀 Chasing hot stocks like Nvidia or Apple can be a mistake because these stocks are often overpriced, and predicting the next big winner is extremely difficult.
• 😀 European investors should be cautious when following American investment advice, as regulations, taxes, and available ETFs can vary significantly between regions.
• 😀 When choosing ETFs, consider your strategy first and ensure you're picking the right type based on your risk profile and tax situation.
• 😀 Dividends are not the key to successful investing. Many high-dividend stocks underperform because they lack growth potential.
• 😀 Ignoring tax implications when investing can lead to expensive mistakes. Make sure to understand local tax rules and optimize your investments accordingly.

Q & A

What is the main difference between trading and investing?

The main difference is that trading involves making quick bets on stocks or other assets to profit within a short time frame, while investing involves buying assets and holding them long-term to generate wealth over time through appreciation and cash flow.

Why did the speaker find day trading appealing at first?

The speaker found day trading exciting because it seemed like a quick way to get rich, where you could make fast profits by buying and selling assets in short periods.

What is the statistical outcome of most day traders?

Most day traders lose money. The speaker highlights that even though a few traders are successful, the majority of individual traders who trade with their own money end up losing.

What does the speaker recommend instead of trading?

The speaker recommends investing in assets that grow in value over time and generate income, like stocks or real estate, as this method is more reliable and less stressful than day trading.

What mistake did Jerome make during the 2009 financial crisis?

Jerome made the mistake of 'investing naked,' meaning he didn’t have an emergency fund. This led him to sell part of his portfolio during a market downturn to cover immediate financial needs, which was not ideal.

What should you always have in place before investing?

You should always have a safety cushion or emergency fund in place to avoid having to sell investments at the worst possible time, especially in cases of personal financial emergencies.

How much money should you invest to see significant results?

To achieve significant results, you need to invest a substantial amount. For example, investing €200 per month at a 9% annual return could result in €38,000 after 10 years or €128,000 after 20 years, which can have a meaningful impact on your financial future.

What is the common misconception about investing in individual stocks?

The common misconception is that picking individual stocks will lead to better returns. However, the reality is that many stocks lose money, and only a few top performers drive the market’s overall profitability.

Why is chasing hot stocks a risky strategy?

Chasing hot stocks is risky because these stocks are often already expensive, and predicting which will be the next big winner (like Nvidia or Apple) is extremely difficult. History shows that the biggest companies today may not necessarily outperform in the future.

What is a better alternative to picking individual stocks or chasing hot stocks?

A better alternative is investing in index funds or ETFs, which spread your money across many different stocks in various regions and industries, offering better diversification and less risk.

What mistake do many European investors make when following American investment advice?

European investors often make the mistake of following American investment advice without considering local regulations, tax rules, and available financial products. They may attempt to buy American ETFs, which are not always available or optimal for European investors.

What should European investors do instead of following American investment advice?

European investors should use local brokerages and investment apps that comply with European regulations. They should also invest in European ETFs that align with local tax rules and consider their personal investment strategy.

What is the difference between accumulating and distributing ETFs?

Accumulating ETFs reinvest dividends back into the fund, while distributing ETFs pay dividends to investors. The choice depends on your tax situation and whether you're looking for regular income or long-term growth.

Why is it important to understand tax rules when investing?

Understanding tax rules is crucial because different types of investments, like ETFs, have varying tax implications. Mistakes in this area can lead to unexpected tax liabilities, reducing your overall returns and possibly leading to legal trouble.

What is the biggest mistake people make when trying to time the market?

The biggest mistake is attempting to predict market peaks and troughs, which is extremely difficult and often leads to missed opportunities. Research shows that regular, consistent investing is more effective than trying to time the market.

Why is paying high fees for investment advice a mistake?

Paying high fees for investment advice is a mistake because it reduces your overall returns. Additionally, if you don't fully understand the investments you’re being advised on, it can lead to increased stress and poor decision-making.