My biggest financial mistake

My biggest financial mistake

I have been interested in personal finance for a long time – most of my adult life. I enjoy reading articles about personal finance and learning how to optimize investment returns. Buy low, sell high. Don’t try to time the market. Invest in low cost index funds. I have studied the traditional finance rules and proudly implement them in my own investment strategy.

At the end of 2013, I was completing my MBA. As part of one of the courses, we were given the task of calculating what we were paying to invest in the market. At that time, my Roth IRA was invested completely in an S&P 500 index fund with USAA. I was paying a .25% expense ratio for that fund, much lower than most of my classmates. I felt pretty smart!

I learned however, that other large brokerages offered broad market index funds with even lower expense ratios. At that time, Vanguard’s S&P 500 index fund caught my eye with an expense ratio of just .05%.

In April of 2014, I was getting ready to make a large Roth IRA contribution and finally decided to move my account to Vanguard. The day my money hit my new Vanguard account, the market was just a couple points higher than when my shares were sold from the USAA fund.

It didn’t seem right to lose even a small gain like that. After all, I was doing the smart thing by minimizing investment fees. I should be rewarded, not penalized.

I knew not to try to time the market. But I asked myself, do you really think the market will never dip below this point again? Not a chance. It had already gone up 146% over the previous 5 years since the bottom. We were due for a correction. But even if that didn’t come, just the normal dips that happen every few days would surely take the price below what I needed in order not to “lose” money.

I waited.

And waited.

It never happened. Since then, the market has gone up fairly steadily each year.

In April of 2018, I finally gave in. I had lost enough. Every day my money sat on the sidelines, I was continuing to make the same mistake. The day I finally put the money back in the market, the price was 42.3% higher than the day I had sold 4 years earlier. This error ultimately cost me ~$32,500.

I’d like to say I learned a lot from this experience but I really knew not to do it in the first place. I fell victim to trying to time the market, even though I didn’t think that’s what I was doing at the time. So will this happen to me again? I’d like to think the answer is no. I hope that this experience will remind me (and YOU) that it’s not about timing the market, it’s about time in the market.

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