I’ve Been Investing in ETFs for 7 YEARS: This Is What I’ve Learnt

So it's been over seven years since I started passively investing into index funds via ETFs. And over that period of time, my portfolio has grown by tens of thousands of dollars. And I've learned a lot throughout that period as well. I've changed my investing approach several times now and have also made my fair share of mistakes. Some of which might surprise you. So today I'm gonna be sharing with you the seven most important lessons and by doing so, hopefully you guys will be able to avoid some of the mistakes I've made over the past seven years. Lesson number one is to keep it simple. This one definitely took me a while to learn. So let's go back to the beginning to show you what I mean. Since my knowledge was fairly limited back in 2017, I actually started investing in the stock market via a robo-advisor. Which if you don't know what a robo-advisor is, it's essentially like an automated financial advisor that is meant to choose the right set of investments based on your risk tolerances and then automatically rebalance your portfolio every quarter or every year. But after doing more research into investing and the world of ETFs, I realized that I could buy the exact same ETFs on my own and that way I would have full control over how my money was invested. And also save 0.7% in fees that the robo-advisor was charging me every single year. Well, even though I started investing into ETFs myself, I still managed to overcomplicate my portfolio. At the beginning, I was splitting my money across six different ETFs or providing me with different exposure to different markets and sectors from around the world. I had one ETF providing me with exposure to the Australian stock market, another one providing me with exposure to the US stock market, another one that focused on all other developed markets across the world, one focused purely on the Asia markets, and then one focused purely on technology. And lastly, one focus on small cap stocks. I felt tempted to try to beat the market so I selected precise percentages to allocate to different regions around the world. At the time, I didn't necessarily consider how much time I would need to manage this portfolio, nor the tax implications or the additional costs that come with constantly having to try and rebalance your portfolio. And in hindsight, the effort that went into managing that portfolio wasn't even worth it because as it turns out, that portfolio still would have underperformed a single diversified ETF. After one year, I finally realized that a six ETF strategy was way too costly and too cumbersome to maintain in the long term. So I decided to sell off several of my ETFs and then decided to go with a much more simple to fund strategy. As you can see, the start of my ETF journey was quite messy and far from straightforward. So don't be hard on yourself if the same thing happens to you. Luckily, I was able to avoid any costly mistakes throughout this period and it simply took me a bit over a year to learn the benefits of keeping things simple by sticking to a simpler strategy instead of trying to outperform the market. The next lesson is that fees matter to a certain extent. The benefits of ETFs is that it allows us to diversify our investments and invest into hundreds or even thousands of different stocks while still paying very little fees in the form of an expense ratio. But once you've selected an ETF with an already low expense ratio, stop obsessing over ways of how you can reduce this even more as it's likely not worth your time. Fund managers like Vanguard, BetaShares and iShares are constantly working on reducing their fees for their existing ETFs. And I'm confident in saying that they'll likely continue to lower their fees for their new and existing products over the coming years. Now, when it comes to brokerage fees, luckily, we also live in a time now where brokerage fees are also extremely low. I've personally swapped brokers three times now and that's because when I first started investing, there weren't as many options in terms of brokers as there was when I started. One of the first trades that I ever made with CommSec cost me over $50 in fees. Now, don't worry, I'm no longer with CommSec, but instead, I'm currently using Moomoo. Moomoo are a low-cost chess-sponsored broker here in Australia, with trades starting at just $3 to invest into the Australian market and 99 cents to invest into the US markets. Moomoo is great for both beginner and experienced investors because they offer professional-grade tools without being too intimidating. One of my favorite features is the ETF screener. Moomoo's powerful ETF screener lets you find ETFs based on thousands of filters, including range, valuation indicators, technical indicators, and many other parameters. This is really useful, especially when you're researching which ETFs you want to invest in, as it helps you find ETFs that match your investing preferences. You can pair this up with the ETF comparison tool, which allows you to compare three different ETFs side-by-side. I've used this in the past when I've been doing research into which ETFs to invest into because you can easily compare performance, expense ratios, individual holdings, and much more. In addition to this, another useful tool is the thematics ETFs. You can easily explore stocks related to various concepts, such as cryptocurrency and gold. All of these features are available within the Moomoo app completely for free. So if you want to check it all out, use the link down in the description down below. And if you sign up and meet certain deposit requirements, you can receive up to 10 free stocks worth up to $3,000 and two brokerage waiver cards worth up to 2,000 US and Australian dollars after completing your first buy order. Don't get distracted by that shiny new toy. Passively investing into a broad index via an ETF may seem simple enough, but actually sticking to the strategy is not as easy as you might think. Every day it seems like something new is being released. New phones, new cars, and new technology. The same can be said about the world of investing. Every day that seems to be a hot new stock that everyone's hyping up or a new investing app that's being released into the market. And oftentimes it can be really tempting to invest your money into these shiny new toys that everyone's talking about in the hopes of generating higher returns quickly, but more often than not, it can lead you to disappointment. Back in 2020, micro investing platforms in Australia were all the hype. It enabled young Australians to begin investing with as little as $5, significantly lowering the barriers of entry to investing. These platforms also offered professionally managed portfolios, meaning you didn't even need to do any research yourself. And even though I knew at the time that actively managed investments more often than not don't actually beat the index, I thought it'd be different this time. And so even though I was already investing into ETFs at the time, I decided to start investing into a micro investing platform known as Spaceship. Mainly because everyone else I knew was investing into it as well, and I didn't want to miss out. The FOMO was definitely real. And so I set up reoccurring investments and over the span of a year and a half, I built up my investment portfolio with Spaceship to over $12,000. Now I won't lie, it was actually performing pretty well over that period of time, up until the COVID-19 stock market recession. In the span of a few months, my portfolio had nearly halved to $6,000. And over the next two years, my portfolio actually never fully recovered to where it was originally. And it actually wasn't until earlier this year that I finally sold everything that I owned with Spaceship and stopped investing with them. And in total over that four year period of time, I incurred a capital loss of $200. If I had just stuck with my original investing plan and instead put that money into the ETFs that I was already investing in, I would have been significantly better off. So don't get distracted by that hot new stock, that new investing opportunity, or what your friends are telling you they're investing into. If you've already got an investing plan and strategy in place, then stick to that and just ignore everything else. It never feels like the right time. Somehow it just never feels like the right time when it comes to investing. And I get it, the media will always have some scary, the world is ending headline that the market is going to crash, blah, blah, blah, blah, blah. But had we have actually listened to those news headlines, then we would still be waiting on the sidelines, waiting for the perfect opportunity to invest our money into the stock market. A study done by A Stots Investment Research observed that during a 10 year period from November, 2005 through October, 2015, that if you missed the 10 best market days over the specified 10 year period, you would stand to lose on average 66, 66% of the gains that you would have captured by just staying in the market. This means that when the market goes up, it goes up quickly. So whenever you're scared to invest and your money is just on the sidelines, you risk missing out on some of the best days the stock market can offer you. So the thing that you need to realize is that you can't really time the market and there is really never a right time to invest. Let's hear from the creator of passive investing, Jack Bogle himself on this very topic. That when you act on the emotions of the marketplace, you're making a big mistake. You know, I stay and always have said, stay the course, don't let these changes in the market, even a big one, that was a 50% decline. Don't let that change your mind and never, never, never be in or out of the market. Always be in at a certain level. So the messaging really is to stay invested and don't let any changes in the market deter you from continuing to invest. Sure, you might be able to pause your investments for a time being, but never pull your investments out from the market. As long as you stay invested in the market over the longterm, your money will definitely grow. The next lesson is to protect your investments. Now I know you've probably heard this a thousand times before, but I can't stress with you the importance of having an emergency fund. Back in 2019, I was still living at home with my parents. And so at the time, my expenses were really, really low and thought I didn't need an emergency fund. One day, unfortunately, I got into a pretty bad car accident and my car's entire bumper was completely messed up. The mechanic said it would cost me over $5,000 to fix. And obviously I was super stressed out because I had no idea where I was going to get that type of money in such a short period of time. Whilst I was working full-time at the time, $5,000 was a lot for me back then and still would have taken me several months to save up. I asked my parents for the money, but they wouldn't lend me the money. I even thought about taking out a personal loan, but then I decided against it at the last minute because I didn't want to pay such a high interest rate. In the end, I decided to sell off some of my investments to actually cover the cost of the car repairs. Because I sold my investments and I had made money on that investment, I then had to pay capital gains tax as well that year come tax time. And so the lesson that I learned that day is the importance of an emergency fund. Not only does it cover you for when you have an emergency in life, but it also serves as protection for your investments. Be greedy when others are fearful. Back when I first started investing, whenever there was any news about the stock market potentially dropping or fears of a stock market recession, I always held off on investing because I didn't want to invest only for the stock market to suddenly drop. But looking back now, I realize how silly I was because no one can really predict what the stock market is going to do. If you're investing for the long-term, then the mindset that you should adopt is that when the stock market falls, that's actually a great buying opportunity. Since you're basically buying at a discount. What I did to help myself overcome the fear of investing when the stock market is in a decline is that I followed a dollar cost averaging strategy, which is an investment strategy where you buy X dollars worth of stock over a fixed integral period. For example, you invest $200 into Microsoft every single month for five years. If you're investing a fixed amount of money each time you buy, you'll get more shares when the stock price is lower and less shares when the stock price is higher. Over time, this tends to minimize the cost per share that you pay for a given stock or ETF. For example, let's say you're looking at a particular ETF and you have $300 to invest over three months. In the first month, it's at $10 per share. In the second month, it's at $5. And in the third month, it's $20. With a dollar cost averaging approach, you would spread that $300 over the three months and invest $100 each month. At the end of it, you would have bought 10 shares in the first month, 20 shares in the second month and five shares in the third month. So in total, you now have 35 shares for $300 for an average price per share of $8.57. Warren Buffett once said that it's wise for investors to be fearful when others are greedy and to be greedy only when others are fearful. If we also took Warren Buffett's advice to be greedy when others are fearful, then if you have the money available, then you can also invest more than your usual amount whenever there's a dip in the market. After all, who doesn't like to buy things on sale? So in the second month, when the stock price fell by 50%, let's say we decided to be greedy and instead of investing $100, we invested $200 instead. So in that month, we would have received 40 shares instead of 20, thus bringing the total amount of shares that we now own to 55 for a total of $400 invested, bringing down our average price per share to $7.27. When the stock market takes a significant dip, which it definitely will sometime in the future, the news and media outlets will tell you that it's all doom and gloom. But just remember that the stock market will go up in the long term. So focus on the long term, not the short term.