You need not make every mistake yourself. There’s always the option of learning from my mistakes, or others’ mistakes, and doing better. It’s one of the better aspects of being a sentient being who can learn from the world around them.
Back in 2008/2009, there was a recession. I got scared and I stopped contributing to my investment portfolio. This was a huge mistake! (And I’ve made many mistakes over the years when it come to my money.) There’s no way to go back in time and change my choices. So, this time around, it’s incumbent on me to not make the same mistake.
Though the experts haven’t yet called it such, I’m pretty sure that we’re in the very beginning of a recession. The stock market’s gains from 2021 have been wiped out. My investment portfolio has suffered a 6-figure loss! I’ve stopped checking its value because it’s too alarming to see the numbers continue to drop day-by-day.
When my portfolio suffered losses in 2008/2009, I made a big mistake. My error was to stop investing my money while the stock market was on sale. The stock market, as a whole, was falling in value. That means it was on sale! I should not have stopped contributing money from every paycheque. Instead, I should have stuck to my plan and continued to buy units in my selected mutual funds. (At the time, I had not yet switched over to cheaper-and-equally-effective option of buying exchange-traded funds.)
Do not make this mistake with your own investment portfolio. Continue to invest your money!
This time around, I’ve stuck to my plan. A portion of every paycheque is still being re-directed to my selected ETFs. Since the unit price of my ETFs is down, I’m buying more units with the same amount of money. And when the unit price goes back up, which it will, the value of my portfolio will benefit from having bought the additional units at a cheaper price.
If you haven’t started, now’s the time.
If you haven’t started investing in the stock market, now is a great time to do so. Everything is down, which means everything is on sale. Don’t ever believe that the stock market only goes up. Its nature is to go up and down. This is normal. Right now, it’s going down. It will go back up at some point, but you need not worry when.
In my inexpert opinion, money that you don’t need for a long time should be funnelled into the stock market. I used to believe that a person had to be completely debt-free before investing. My views have become more nuanced. If you’re in your 30s, 40s or 50s, and you haven’t yet started investing, I would not suggest focusing solely on your debts. Even if you can only squirrel away $50 each month for investing, do so. As you pay off your debts, you can use 75% of your former debt payment to increase the size of the initial $50 contribution.
Your $450/month payment is finally done? Great! Add $337.50 (= $450 x 75%) to your $50 so that you’re now contributing $387.50 per month to your investment portfolio.
Time in the market is necessary for your portfolio to grow. Starting to invest during a recession is a good thing for you. It means you’re buying when prices are low. The more you buy now, the better your upside when the stock market starts growing again.
Also, you’ll have to develop a thick skin to deal with the volatility of the market. Remember, stock market investing is a long-term play. This won’t be the last recession that you’ll have to endure. Starting in a recession today will make the less volatile times ever so much more pleasant. You’ll also be that much more experienced when the next recession rolls around.
Stick to ETFs to keep your MERs as low as possible.
Learning from my mistakes and doing better means you can avoid paying higher-than-absolutely-necessary MERs. I used to invest in mutual funds. Canada has some of the most expensive mutual funds in the world, which means that people who own mutual funds pay more in management expense ratios that people who own ETFs.
When Vanguard Canada became an option for me, I compared their ETFs to the mutual funds in my investment portfolio. The ETFs were comprised of the same companies that were in my mutual funds. In other words, I could still invest in the same companies for a much lower MER.
I used to pay 1%-1.5% in MERs on my mutual funds. When I only had an investment portfolio of $10,000, the MER shaved off $100-$150 every year. That’s not a horrible amount of money. However, I knew that I would be investing for another 20 years or so, and that I wanted my portfolio to grow much larger than $10,000. The question was whether I wanted the investment company to siphon away more of my money every year. After all, whatever monies weren’t eaten by the MER would stay invested in my portfolio and have the chance to grow over time.
Put yourself in my shoes. Would you rather pay $15,000 or $3500 for nearly-identical investment products? What makes the mutual fund worth an additional $11,000 per year?
Today, my portfolio is brushing up against the Double-Comma Club of $1,000,000. It makes no sense to pay $10,000-$15,000 in MERs each year when I can pay MERs of 0.35% or less.
Save yourself from another one of my mistakes, which was needlessly paying too much in MERs for my investment holding. Invest in ETFs instead of mutual funds. If you’re currently in mutual funds, find a comparable ETF and move your money to the ETF.
Stock-Picking is not for me!
My suggestion that you invest in the stock market while it’s down is NOT for those of you who want to buy individual stocks.
I don’t do stock picking. Personally, I find it takes too much of my time and it’s a very good way to lose money. I don’t have the expertise to understand any given industry, nor how any one company can guarantee dominance in its industry. The only individual stocks I own are the ones my parents bought for me when I was a baby. Again, I don’t do stock picking. I choose to only invest in ETFs because they have built-in diversification and I’m not committing my money to any one company. ETFs allow me to invest in a variety of industries and a much larger number of companies than I ever could otherwise.
To me, stock-picking requires a level of expertise and commitment that I simply don’t care to develop at this stage of my life. There’s always a chance that will change. If you want to do stock picking, then do your research first and make sure you know what you’re doing.
In a nutshell, don’t stop investing in the stock market just because we’re going into a recession. If one of your money mistakes is that you haven’t started to invest, then this is a great time to rectify that error. The stock market is down, which means investment products are on sale. You need to get your money into the stock market, and you need to leave it there to grow over a long period of time. Don’t procrastinate any longer – start today!