Common investing mistakes: nine habits that hold you back

0:00I've spent the last 20 years of my life immersed in money, first through an economics degree, then as an investment banker and as a corporate finance lawyer. And it has allowed me to break my bad investing habits, and I'm going to share here with you the most common 9 bad investing habits that hold people back.

0:20Saving money is a waste of time. I used to have a pile of cash, I'd worked for it, and it's sitting in a current account in a bank account, and I felt very proud of it. I thought I'd saved money, brilliant, that's what I was taught to do. But it's a huge mistake. Why?

0:39Well, I've just come back from London, a city I used to live in 20 years ago, and I went through the property prices. But guess what, they've gone up like 10 times, 20 times in some cases. Had I taken my cash pile and bought a property with it 10 or 20 years ago, well, A, I would have paid off the mortgage by now, and B, the value of that would have increased significantly. Same if you bought shares or an index fund or anything like it. By me having that cash sitting there for many years, I just lost out. Inflation ate at it and asset prices went up, which meant that my money was worth less and less and less and less. So don't save, invest. That's the lesson.

1:22Paying your investment account last. Now it's a little ironic, I'm sitting on a private jet and I'm flying to Hong Kong and I'm telling you you should start putting some money aside. But it wasn't always like this. I used to fly economy, I used to earn £30k a year, and I'm doing this because I like flying with my pets and I like my fuzzy creatures so much that I don't want to put them in the hold. So I'm very lucky I can do that for them.

1:49But coming back to paying your investment account first, you want to take the first 10, ideally 30 per cent of your post-tax income and you want to transfer that into an investment account, ideally at a different bank so you can't mix it, you can't spend it, there is some delay there if you wanted to touch that money. And you want to do that on day one when you get your paycheck.

2:12Most people get home, they pay for the bills, they pay for the rent or the mortgage, they pay for this and that, and they go for a nice dinner, they go shopping, and you deserve all those things. But at the end of the month there is very little left or nothing left at all. And that's human psychology, we tend to spend what we have available. So by taking that money aside at the beginning, yes you have a smaller budget left, that one sucks a little bit, but that's how you get to actual freedom. So it's important.

2:40And you will also find some savings in your spending, in a good way, that are currently wasting money, because you are looking more actively now. But how can I still do all the things I want to be doing without that 10, 20 or 30 you've got taken away?

2:56Debt before stocks. Get rid of your consumer debt. That's bad debt. That's not your mortgage. No, it is your car loans, your credit card balances, anything you've bought on the store card or anything that you have to pay for over several months. That's bad, get rid of it. Why? Because you have to pay interest for that. It's pretty high. Credit card balances cost something like 22 per cent on average. So don't do that, pay that off. Then once you've done that, go and start investing.

3:31Have an emergency fund. It's very important to have some amount of cash, and I know I said cash isn't good, that you want and you need some emergency money. That can be 3 months, that can be 6 months. It depends a little bit on how many income streams you got going on your household. If it's just one, I'd say you want 6 months. If you've got more than that, maybe there's 2 of you working or you have different income streams from freelancing or rent coming in or something like that, then maybe it could be a little bit less.

4:02But you want to have that in place. Why? Because the market, once you invest, will inevitably at one point crash at least 30 per cent down, and you will freak out and you will sell at the bottom of the market like most retail investors because you can't afford to lose that money. Whereas if you have the emergency fund, you can say, well, I'd be able to sit this out, let's wait 6 months and see if the market comes back.

4:27Stop being a sucker to brands. Brands fill you through advertising and TV shows and everything else with a desire to have some branded item, to keep up with the Joneses, buy the latest handbag or the latest watch. I don't actually own a watch. And all that does is it saps you of your potential wealth. I see young guys out there who are earning £100k and they're buying a $20,000 watch. Like, what? Now unless that's a watch that's going to appreciate in value and it's an investment, it usually isn't. You're just trying to fix something so you impress your friends. You're not impressing your friends, you're sabotaging your own financial freedom.

5:12So what's my shopping rule, as I'm sitting at this, I get the irony of it. I like to spend money on services because I really enjoy certain comforts. I don't buy really anything branded. I never buy anything because it has a label on it. I used to do that, that was insecure, I'm no longer insecure, so I don't buy it. I like stuff, I buy it, okay. But I don't go out and go, I need the latest this, I need the latest model of car, I don't need a Tesla or a Rolex or whatever it might be. Because all that does is me trying to fit in, it's just me trying to impress the people that I already care about. And I'm giving my money to companies like LVMH, whose owner is the 2nd richest guy in the world. So that's what you're doing, you're making the rich really rich and you're making yourself poor.

6:03Per section, time allocation. You spend probably 8 to 10 hours a day working a job, could be more. And how much time do you spend each day on your money? How much time do you give your money so that it can make money for you? Probably close to zero. That's what most people do.

6:22So the important thing here is not to spend 8 hours a day on your money, because then you'd never sleep and life would suck. But set some time aside, ideally each day, 15 minutes in the morning or at lunchtime or in the evening, whenever. Or you could do it on the weekend, but I like the daily thing because it becomes a routine, it becomes part of your life, where you sit down and you study how the market actually works, how money works, and how you can become a great money manager.

6:48Because the ultimate freedom will come not from your salary but from what you do with your salary and how you invest it, so that your money can work for you. You want to get to a place where you have enough money in your investments and you can live off 4 per cent of that a year. So what you're going to do is look at your annual expenses and multiply them by 25. That's your freedom number. Write that down.

7:15Goal setting. And I'm not going to say to you if you set a goal the universe will magically make that happen, although there's some truth to that. Why do you need a goal? I'm sitting in a plane here, the guy behind that door, he's got a flight plan, right, that's popping up on the screen there behind me too. And that tells him where he's going, so he knows where he's flying, we're going to get there. If he didn't have that, we'd just be going around in circles, be enjoying the nice view, which is actually glorious, but that's not the point.

7:42The same is true for you and your life. If you don't know where you want to get to, you're not going to get there. So write down today what you actually want out of life, what you enjoy doing, and that freedom number that you need in your investment account. And if you find it hard to write down what you enjoy, here's a little trick. Write down what you hate. Once you've written down what you hate, in the column next to it write the opposite. There you go, that's what you want in life.

8:09Taxes. Everybody has to pay some taxes, but the smart people invest in some tax advice so that they pay less, legally. Why does it make such a big difference? Okay, say you earned $200,000, example, could be more, could be less for you. And say you pay 40 per cent tax. How much is your after-tax income? It's $120,000. Say you put 20 per cent of that aside into your investment income pot, that's $24k a year, right.

8:42Look at me, I chose to live in a tax jurisdiction where I pay 15 per cent tax. Clever me. But you can do the same strategies even if you live in the US or the UK or anywhere else in the world, we'll get to that. So I have, post-tax in that situation, still the $200k income, then I have $170,000 post-tax. So I'm able to put a larger percentage actually of that into an investment account just because I got more money left, right. So say I put 30 per cent down, that means I'm putting $51,000 a year into a savings account. That's much better, right.

9:15What's the difference? Okay, your strategy, 40 per cent tax, 25 years of investments, 8 per cent return, you have $1.8 million. Me, with my slightly higher amount because of the lower tax, 25 years investments, still the same 8 per cent return, I have $3.9 million. Life isn't fair, is it. I've more.

9:38Than doubled. I did the same amount of work, didn't earn any extra money, and I have more than double your money. So if you are living in the US for example, you need to have a Roth IRA, you need to know how to use it. Peter Thiel, that venture capital guy, PayPal guy, he's got $1.2 billion in a Roth IRA. He is not paying a lot of tax on that, i.e. is paying no tax on that. You live in the UK, ISAs, you need to max them out. If you have an employer and they match your 401K contributions, again you need to max that stuff out. It all saves you tax.

10:13Waiting too long to invest. Most people go through life and go, well I'm not investing right now because I'm gonna get a pay rise next year, or when I've paid off the car or the house, or I'm gonna have funded my children's college fund or whatever it might be. And you're delaying it because you think, well I'm gonna get more money later. Problem with that is that the way compounding works, this hurts you tremendously. So you need to start investing now, even if it's $50 a month, $50 a week, whatever amount you can start with it.

10:50Because the trouble kicks in when incomes go up, our expectations go up with it. So typically our spending goes up. Your spending typically fills the void that you created through the higher salary. So set aside that percentage number and then try to figure out how to get it up, but don't wait. Could be $100 a month, as I say. Stop, pop it into an account, get a simple savings account that automatically invests out for you, just pop it into an ETF or something like that. It'll get you into the mindset, into the mood to actually participate in this. The earlier you start, the benefits are absolutely tremendous.

11:33Enjoyed this video, I made another video for you which is step 2 to this. So now we've agreed on, okay we need to do some things to actually invest, how do we actually invest, how do we pick great stocks, how do successful fund managers and money managers go and look at companies. They've broken this down for you step by step including downloads and everything. It's completely free, all you're going to do is click here or maybe even there and get some popcorn and enjoy. Thank you very much for watching, thanks for tuning in.