Principle 6: Avoid big mistakes, especially early in life

E ver heard that advice that says don’t be afraid to make mistakes while you’re young? Or quotes telling you to be “young, wild, and free”? I have to tell you, after listening to award-winning financial analyst Andrew Stotz’s thoughts on personal finance, I can say that while we should not be afraid of the inevitable—we all make mistakes, financial and otherwise—we should be especially prudent with our investment decisions early in our investing lifetime.The line that struck me most was when Mr. Stotz said “$1,000 lost at age 25 is $10,000 when you’re 60.” I was skeptical. I was like, come on, I have a very long investment horizon before I retire, I have decades to earn back any near-term loss in the stock market!As those words were echoing in my head, it felt like Mr. Stotz could read minds. He stressed that young people like me, and the rest of his audience, should take due caution to be responsible with money. He went on to show graphs on how compounding—which I have discussed in my previous posts—will help our money grow dramatically faster the earlier we start investing the right way. A few major wrong decisions here and there over a long period of time have the potential to substantially reduce our returns.And because we are relatively young, we are prone to a generally aggressive mindset when it comes to investing and trading. We sometimes get a bit overexcited and experience what Mr. Stotz calls an “emotional firestorm”. It’s a recipe for disaster if we allow this emotional response to dictate our trading and investing decision making. We will be more prone to making more serious mistakes more often: withdrawing stocks prematurely, panicking over a loss, not being able to think for the long term, and so on.The lesson? Understand that you will make investment mistakes, but take great care to minimize them early in your investing lifetime. If you don’t, chances are, you will pay a hefty price—literally.Danielle covered the three-day university tour of Andrew Stotz in the Philippines from October 2 to 4, 2014. She will discuss each of Andrew’s 12 investment principles from her perspective. All articles will be posted here on www.andrewstotz.com.
//]]>