The Most Expensive Mistake You Can Make

Investing mistakes

Not too long ago, I was scrolling through Instagram when I stumbled across an interesting chart.

The author of the post was making the point that the amount of money you should save/invest is really a function of two things:

  1. Your investment goals (i.e. how much money you want to have)
  2. Your investment horizon (i.e. how much time you have to get to your goal)

Here’s the chart itself:

Monthly investment required for $1m

All straightforward (and very helpful) personal finance stuff.

However, what struck me as I was looking at the chart was the absolute disparity between the various columns.

Start at 25, sock away $310/month, and boom – you are a millionaire by the age of 65.

All in, you’ll put away just under $150k over the 40 years. The stock market will take care of the rest, multiplying your money more than six times along the way.

Didn’t get started at 25? No need to despair.

You can still get there – but you’ll need to chuck in $467 a month instead. By the age of 65, you are all caught up.

Cool $1m in your investment account – but your tardiness has cost you.

Your contributions were about 50% higher – and the stock market didn’t work nearly as hard for you.

Over a period of 35 years, it has quintupled your money. Not too shabby, but not nearly as good as what your 25-year-old alter ego got.

The way this story plays out shouldn’t be a surprise to anyone:

Total investment required for $1m

The later you start, the less time you have to take advantage of the magic money machine.

The opportunity cost is nothing short of astounding.

Unfortunately, there are many, many people in this world who are very good at budgeting and saving money – but simply cannot bring themselves to pull the trigger when it comes to actual investing.

As a matter of fact, I was in the same boat for a very long time.  My parents were great at instilling the right savings habits – but not so much when it came to investing.

It felt scary, and so I put things off.  I started saving money back in 1999 – but didn’t get into the stock market until five years later.

It didn’t end at the stock market either.  By the time 2006 rolled around, my (future) wife and I had saved enough for a down payment on my first property. But it took us another four years to finally pull the trigger.

We ended up buying a condominium in 2010 – and have done very well with it.

However, I literally get tears in my eyes when I think that four years earlier, the same amount of money would have gotten us a fully detached house.

Had we not been so scared to invest, our net worth would have been at least $1m higher today.

Based on our current run rate, that’s about two years of my life. Two years out of the work grind, spending time with my children, and having complete control over my time.

Tick tock. Tick tock.

The Invisible Thief

When I was buying our latest property back in July, my mom called me and asked: “Aren’t you scared you will lose money? Wouldn’t it make sense to hold on to the cash?”

What do you say to that?  Any investment comes with a risk of loss. That’s why they are called risk assets.

Unfortunately, the alternative of a possible loss is a guaranteed loss.  Because whether you like it or not, inflation will keep eating away at the purchasing power of your money:


And so that’s exactly what I told my mother. All in, my down payment and associated expenses came to about $300k.

At a 3% inflation rate, that money loses it’s purchasing power to the tune of $9k per year.

$750 a month. Twenty-five bucks a day.

Tick tock.

Like sand sifting through your fingers. And the reality is that the only way to avoid the loss is to get – and stay invested.

At the end of the day, what’s done is done. No point dwelling on the mistakes of the past. We all make them – the point is to learn from them and move on.

What I’ve learned over the years is that as investors, the question we ask ourselves most often is:

“What if I invest and the market goes down?”

But instead, the really important question we should be asking ourselves is:

“What if I don’t invest and the market goes up – which is what it always does?”

Happy investing!

12 thoughts on “The Most Expensive Mistake You Can Make”

  1. A timely article. I was just reading Stan Weismann 1988 book

    Which was excellent. Written before the lawyers got to censor the info.

    According to his methodology, the UK ftse is on a descent now and the US is close to serious danger land.

    Declining moving averages, not a buy indicator at all.

    I realise it’s always different this time (!!) but especially here, the uk economy is not looking great for the rest of the year.

    I get the “time in the market” Vs “timing the market” But I feel it’s time to reduce some exposure to UK and US.

    I did find a free pdf of the book though 😁

    1. One reason I proactively avoid the UK is that I feel overexposed to UK macro as is, in particular through employment and the unvested shares my wife and I get from our employers.

      In essence, our exposure is significantly above the 4% or so the UK represents in the world equity markets.

      I’m much more bullish on the US for a variety of reasons, but even if I wasn’t, it’s tough to find an alternative. Can’t say I would ever feel comfortable having 50% of my stock portfolio (which is roughly the proportion of US equities in the world equity markets) in other developed country / EM stocks.

      PS: thanks for the link!

      1. Yes it’s a tough call. Your uk sentiment is a good point. I’m def over weight here.

        However The past 10-15 yr bull run in the USA has been insane…….they should create a S&P495.

        Remove the faang stocks from it and see how well it has done! I think it is at the same level as almost 3 yrs ago.

        So in effect 5 companies have driven the growth in an index that covers 80% of the whole us market cap.

        In this case unless you market timed/traded the 495 companies left, you were not going to do well.

        So what are we left with!

        1. You are right. I happen to hold a small-cap and a value ETF alongside my other holdings. They’ve done very well between 2010 – 2017 and have lagged ever since.

          At some point though, the trend will reverse. FAANGs will reprice downwards and other stocks will catch up on lost ground. That’s the beauty of holding the index.

          I’m all for EM exposure but just don’t feel there’s a better way to get it than to own US companies that actually do business there. The last thing I want in my portfolio is another Petrobras or a Chinese quasi-state-controlled company.

  2. Excellent article, I can really empathise with this.

    What I find difficult is that I was brought up with a similar emphasis on cash is safe whilst growing up and still my family focus on cash deposits and lament the derisory interests rates on offer and shun the markets – they do have index linked final salary pensions though so financially they are ok, but the amount left on the table over the last 20/30 years must be immense.

    I’ve managed to overcome my biases with monthly contributions to my index funds from an early age, but been scuppered when confronted with lump sum payments due to being in the fortunate position to get annual bonuses. Market timing nonsense and fear loom large when trying to get these darned lump sums invested, even though logically I get the maths and know critically that time in the market is better than timing the market.

    This type of psychological stumbling block gets addressed by advisers who focus on behavioural finance, perhaps I should have been spending a 1% fee to conquer this rather than going it alone. I reckon there’s a bit of scarcity mindset at work along with a blind spot on long term results.

    1. Thank you and spot on. It’s easier to tell people what to do than to actually do it.

      As an example, I’ve got about £30k of employer shares that are about to vest. In theory, I should be selling them on the day they vest and putting all of my money into VUSA. Passive investing all the way, right?

      In practice, I agonize over the fact that the shares are about 30% below the award price and am REALLY tempted to hold on until they go back up before selling.

      Behavioural bias at work.

  3. Perhaps the solution is to pick a range of funds that one is comfortable with and keep sprinkling contributions onto these come what may?

    Of course the difficulty is in deciding what is the appropriate ones to pick and I think this is where many people fall short.

    Would appreciate your views on the Vanguard Life strategy funds – these appear to offer an off the shelf , low cost (0.22%) approach to investing, without having to rebalance or worry about portfolio allocation.

    1. That indeed is the best strategy. Issue is making sure any lump sums go in there as well, which is what most people (myself included) struggle with.

      On Life Strategy – I think it’s a great choice. Just make sure you pick the one with the right bond exposure. To state the blindingly obvious, the longer your investment horizon, the higher the proportion of equities you want.

      *EDIT: As a reader helpfully pointed out when commenting on another post, Lifestrategy has a significant tilt towards UK equities. VWRL is a good alternative:

  4. hi BoF – how do you feel about the increasing comparisons (at least of the US and other developed nations) to Japan’s anemic stock market and lack of growth as a counterargument to the market will always go up philosophy? these populations are not growing as much and every country around the globe is facing more costs due to climate change etc.

    1. Hi there, good question I think.

      I don’t really buy the argument that Japan’s stock market bears any similarity to the US. It’s much more inward looking and not nearly as globally exposed as the S&P 500.

      That being said, there’s always a probability that we MIGHT be in for a nasty, long mother of all recessions. However, that probability is quite low – and when I compare it with a 100% probability of losing money if I don’t invest, I always choose to pile in.

  5. @Mark and BoF

    Was it sheer mental brute force that got you to overcome the lump sum stumbling block? I resonate well with Mark, good cash savings habit but little to no stock market education, having taken this learning journey on myself over the last couple of years. I have above average income (55k), pretty secure, as long as the company I work for survives the various knocks that are happening at the moment.

    I’m in the fortunate position of a 13k cash ISA still earning 1.75%, whilst also holding around 10k in various current accounts for EF. I KNOW the 13k needs to join with my monthly contributions into global all cap, I’m just really struggling to pull that trigger… Any advice?!

    1. This is a textbook example of corporate finance theory diverging from real life.

      In theory, you should lump it all in ASAP. Nine times out of ten, lump-sum investing beats DCA.

      However, the theory ignores the fact that once in a blue moon, you may well lump-sum just before a big meltdown. It’s unlikely, but it could happen. If it were to happen, your strategy has a negative expected value. Thus, your hesitation is actually very rational.

      What I would suggest is breaking your £13k into portions, let’s say a grand each – and putting them to work over the next 13 months. This should hopefully help you get off the fence and put your money to work – without causing too much discomfort.

      Let us know how you get on!

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