The biggest mistake I made as a long term ASX investor was to ignore the power of compound interest.
Sure, I have had some absolute blunders in the sharemarket.
For example, I lost more than 50% of my money on instalment warrants of Rio Tinto Limited (ASX: RIO) — in less than a year.
My investment in G8 Education Ltd (ASX: GEM) shares cost me (very) dearly.
Slater & Gordon Limited (ASX: SGH) was… well… the single most expensive investment I ever made for my family’s portfolio — and my own.
I invested in Reffind Ltd (ASX: RFN) in the ‘hope’ they would make money.
And I have learnt the hard way what poor management can do to a small company, like Yowie Group Ltd (ASX: YOW).
But none of these mistakes even compare to my failure to recognise the power of compound interest.
Because while I was trying to find the next gangbusters growth stock, I missed one very important idea: losing money destroys your ability to compound your wealth.
I’m still well ahead since I began investing.
But throw in an itchy trigger finger with emotions and you can easily and quickly mess-up an opportunity to compound your wealth at an extraordinary rate.
What not to do
Based on each of those terrible investments above, here are some thoughts:
- Rio Tinto: Keep investing simple. I’ve never heard of anyone who has got rich by investing in ‘warrants’.
- G8 Education: It’s okay to change your investing style. But there is no rush.
- Slater & Gordon: Don’t take management’s (or the auditors) word for it. Read the notes to the accounts.
- Reffind: Hope is not an investing strategy.
Yowie: Position sizing is important. I put far too much in a company that was not profitable.
Be a better investor
My advice now is that you can try your hand at researching and investing, but don’t let it come between you and the beauty of compounding.
If you have $1,000 to invest, stick half of it in a well-diversified portfolio and half of it in the other companies that you want to own. The diversified portfolio will also rise and fall. But so long as you accept it, I think it will reward you again and again over many years.
Just $500 invested every month for 25 years at an 8% return (slightly below the share market’s long term average) becomes $442,060.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of February 15th 2021
The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
- ALL ORDINARIES finishes higher Monday: 10 shares you missed – October 30, 2017 4:44pm
- Are these the secrets behind Australia’s best ASX investors? – October 30, 2017 3:43pm
- My Aussie Share Market Investing Do’s of 2017/2018 – October 30, 2017 1:13pm