“Experience is the name everyone gives to their mistakes” – Oscar Wilde. Here are my top 3 money mistakes.
1. Picking an investment based on past performance
When I first started working full-time back in 1999, I was very keen to kick start my investments. So I grabbed a product disclosure statement (PDS) from a well-known bank and gone through all the funds looking at their 1 year and 3-year performance. I decided to pick an “International Fund” as it had 20%+ growth in the three years. Unfortunately, this fund got caught in the tech wreck of the early 2000s and I ended up with a capital loss.
As the PDS says, past performance is not a reliable guide to future performance. And definitely shouldn’t be used as the sole criteria for selecting investments. I found this to be so true the hard way!
2. For-going attractive employee share plans
For many years, I did not participate in my employer’s attractive employee share plan where they would match dollar for dollar up to a limit of a few thousand dollars. That’s pretty much a 100% return on my outlay. The reason? It wasn’t because I didn’t believe in the company, but simply I was too focused on “paying down the home loan”. Unfortunately, I didn’t consult a professional financial planner who would have looked my overall situation rather than just me with the blinkers on.
Of course, each individual should assess whether their employer’s employee share plans is the right fit for their given financial situation and financial goals, and consult with an independent professional financial planner to provide advice in this space.
3. Not getting a second opinion
Back in November 2007 with the All Ordinaries Index near an all-time high, I saw a documentary about the potential sub-prime crisis in the US. This got me a bit nervous since most of my savings were mainly tied up in the share market. I also had a margin loan to boot!
These investments were set up to help me achieve my financial goal to save up money on a house deposit and help pay for my wedding and honeymoon. Naturally, the report of a potential US economic downturn got me a little nervous.
So I saw a financial planner and explained my concerns about money that I was about to use in the next 12 months being heavily exposed to the share market. The advice I received was to continue with the investments as withdrawing now would mean I miss out on the potential growth, and just take the money out close to the time that I would need it. Of course, I told the adviser it was ok believing that he knew more than me.
After the market started to make corrections in January and February of 2008, I decided to progressively withdraw the funds. Luckily I did not wait until closer to the end of 2008 to get the funds. As you can imagine, I wasn’t too happy with the adviser whose financial advice convince to not even consider withdrawing my money at the time.
Your professional financial planner is trained to provide financial advice to help you achieve your financial goals. On top of providing advice in regards to your superannuation, life insurance or selecting a super fund and other financial solutions, many professional financial planners can help you manage your money. Of course, if there is anything you are not sure of, it doesn’t hurt to seek a second opinion. It could mean an extra many thousands of dollars in your pocket!
AFP® ,B.Bus(Acc), B.Comp, DFP, ADFP
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Disclaimer: Information on this site may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we have given you, having regard to your own objectives, financial situation and needs before acting on it. Where the information relates to a particular financial product, you should obtain and consider the relevant product disclosure statement before making any decision to purchase that financial product.
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