My Dividend Investing Mistakes
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Although the financial marketers would like us to beleive that managing money is a very complex task that only highly-skilled investment professionals and mutual fund managers can succeed at, investing is not that complicated. Sure it takes some planning and education to understand the process and best-practices, but it is nowhere near rocket science. However, just like everything else in life, it is pretty easy to make investing mistakes as we manage our own portfolios. God knows that I have!!
On this blog, I pretty much tell you readers everything about my investment portfolio. What it is made up of. What stocks I have bought and sold. What my portfolio value is. I might as well share the bad stuff too – the mistakes I have made along the way. This list is nowhere near complete as I am sure there are many more mistakes to come.
Mistake #1: Acting on a Stock Tip
We have all done this one I am sure. You are at a party and one of your “friends” mention that his brother in-law’s sister’s grandmother spoke to her hair stylist who cuts the hair of an investment banker who said that a company based in Vancouver was a sure thing because they found nickel in some mountain. You trust your friend so you buy $2000 worth of the stock and sure enough, it goes up for about an hour and then crashes and you walk away with $750. This exact thing happened to me on a stock that unfortunately I can’t remember the name of. Stock tips rarely work and I have not traded on one since.
Mistake #2: Buying Mutual Funds that Carried a Load
There are really two types of mutual funds: no-load and load funds. No load funds have zero upfront or back-end commissions when you buy or sell that mutual fund. Load funds will charge you an upfront fee or a back-end fee to buy or sell the fund. Load funds are the biggest ripoffs in the industry as you typically get dinged by a high MER as well as the commissions the fund company charges you for the privilege of buying or selling the fund.
Early on in my investment career, I bought funds from companies such as AIC, Fidelity, and Bissett. Each of these companies offered load funds and I bought them. All three of them also had high MERs so I was dinged the whole time I owned them. It wasn’t until I became more educated on investing and realized that most mutual funds have great difficulty even beating the market that I took a more active interest in building my own portfolio.
Mistake #3: Paying High Commissions to Buy My Dividend Stocks
Awhile ago, there was not a lot of opportunity for a dividend investor in Canada to find reasonable buying and selling commissions from a broker. In fact, it still is difficult. Even though commissions have come down, it is still out of line. For example, Action Direct (which is part of RBC Royal Bank which I own) charges $28.95 per trade. Unless you do 30 trades per quarter, then the commission goes down to $9.95. If you are doing 30 trades per quarter then this is not the blog for you. a commission of $28.95 is very expensive, given there are $4.95 options in Canada now.
I personally waited too long to move my account to the CSA to realize lower commissions, and the added bonus of being able to hold fractional shares and reinvesting my dividends into fractional shares, services that Action Direct and many of the other brokers do not provide. There is no need to pay higher fees for buying dividend stocks – it is simply money that you are not able to put to work for you in the market.
I know, these three mistakes are not earth shattering or even very dramatic. However, they have each impacted me in some manner and made me the investor I am today.
(Photo Credit: Luw swift)
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Esme said:
I’m guilty of paying high commissions to buy my stocks too. But last year I tried to open an etrade account because the cheaper commission and higher interest for uninvested cash, they lost my cheque. I’ve not tried to change my brokerage ever since
November 15th, 2007 at 4:53 pm
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