How I used to sabotage my portfolio

How I used to sabotage my portfolio

Some recent reader questions prompted me to update this post – let’s go!

Dedicated readers of this site will know I spend a lot of time writing about what’s working in my financial plan and how incremental money management changes are moving us towards financial freedom every month.

Certainly if you look back at my decade in review you can see we’ve made some tremendous progress towards financial independence over time.

2010-2019: Financial reflections of the last decade

That doesn’t mean I didn’t sabotage my portfolio…

With all the success we’ve had to date, it wasn’t without missteps and mistakes. We’re not immune to bad decisions now and then.

In fact, we used to sabotage our portfolio and our personal finances. We really didn’t know what we didn’t know.

Financial disaster

Over the years we’ve learned some financial lessons and so today’s post updates those lessons so you don’t have to make the same mistakes I did. In fact, should you find yourself in one of these financial ruts below this post will go a step further and offer some tips on how to dig out of them.

I should know, I made these changes below!

Here is how I used to sabotage my portfolio – and what you can learn from it.

1. Investing in high-priced mutual fund products

In my 20s, I invested in mutual funds that charged money management fees close to 2%. Back then I simply didn’t know how much those fund fees would eat into my investment returns. On top of that, I had no idea that most mutual fund managers had no long-term hope of beating their benchmark index, even after a few years let alone after many years.

This is because of this key reason: it is incredibly difficult to overcome the deficits incurred by some funds due to high money management fees charged.

High fund fees basically mean you’re already striving to play catch-up to market-like returns.

Needless to say, we don’t invest in any costly funds any longer. I ditched the mutual fund industry about a decade back now – a decision you can read about including the costly math behind it here.

This is not to say there are not a few mutual funds in Canada, and the companies that manage them, that continue to shine in terms of long-term performance – thanks to their lower-cost structure and diversified approach over their competitors. Lower-cost solutions such as Tangerine funds, Mawer funds and some TD Bank products (e-series funds) come to mind.

If you’re just starting out, you can read this post about some of those alternatives.

You can also now consider some simple all-in-one funds to help you with your investing solutions.

The bottom-line: since lower money management fees are a major predictor and input into future investing gains, it’s best to keep more of your hard-earned money working and less money going out to management fees that offer little to no long-term value.

Beyond my links above, do check out my ETFs page for some of the best, low-cost, diversified funds to own. I’ve also highlighted which ones I own and why!


2. Lacking diversification – it’s a free lunch!

Did you see the current pandemic coming?

Can you predict gold prices later this year?

I thought so. Same here.

At the end of the day, I have no idea what the future holds. Don’t let any financial expert tell you they know either. 

Nobody can predict the future with any accuracy what will happen next. This is why for long-term investing success we should strive for diversification, but it wasn’t always that way for me.

In those aforementioned 20s, the younger My Own Advisor Do-It-Yourself (DIY) investor threw tons of money into tech stocks in the late-1990s. The internet (for those millennials reading this post!) was actually a new thing then.

So, between 1995 when I just started to invest, until the peak of March 2000, the tech-focused NASDAQ Composite Index rose some 400%, only crash nearly 80% by October 2002. It was a massive bubble and killed many investors portfolios as it crashed. Part of mine was included in this rise and fall!

Dot-com bubble

Thankfully I didn’t lose it all. I had some diversification back then. I have more now.

My lesson learned from the dot-com crash?

First, don’t put everything into tech stocks. Sectors can rise and fall on a whim.

Second, diversify. What I mean is, own different companies in different sectors and beyond that, own companies who operate and derive their revenues from many different countries from around the world.

It has been quoted many times that “diversification is the only free lunch” in investing. This quote is attributed to Nobel Prize laureate Harry Markowitz.

I like to think of diversification this way – it’s a risk management tool.

Sure, you can get very wealthy owning some tech stocks. Looking at you Amazon, Apple, Microsoft and a few others!

But remember, at any point in time, the same things that can make you wealthy are the same things that can make you poor. Diversification ensures you are mitigating portfolio risk.

In my 40s now, I continue to read-up and learn more about how diversification can be better for my wealth preservation in the years ahead.

To address that, although I continue to have a bias to Canadian and some U.S. dividend paying stocks, I am owning more low-cost ETFs that hold companies from around the world.

I believe you should at least consider the same for your portfolio.

Over time, I’ll keep you posted on what I own, what I buy, and why on this site.

3. Not embracing market calamity

As a novice investor I was very guilty of chasing the hottest products/funds. In my 20s I not only paid sizeable money management fees (see above) I also chased the performance of those funds.

That was a real double-whammy.

We’ve all heard the investing mantra to buy low and sell high but I was really doing the opposite of this strategy – buying hot and selling what’s not.

I remember I did so because I found it difficult to read and hear stories of other investors getting wealthy off some iron-hot asset class every few months – unfortunately the one I wasn’t holding at the time. 

What I realized over time is if you chase performance there is a good chance you’ll own what is overvalued. I learned there is a better strategy…it’s better to buy assets when they are out of favour. This doesn’t mean speculating as much as it means rebalancing your portfolio when market calamity strikes.

In my opinion, here is a great two-step recipe for what can work for you when any market correction happens (something I practice myself):

  1. Learn from history – reset your expectations

A sudden stock market crash can be quite unnerving but the reality is, over time, it’s expected to happen. History continues to tell us so.

  1. Learn from history – buy when stocks are on sale

The fact that equity markets have done well over the last decade, let alone generations (despite the occasional very scary bump) should be a reminder that stocks remain a great long-term investment to build wealth. 

Consider your answers to these questions:

  • Would you buy more gas for your car if it dropped 20% at the pumps?
  • Would you buy more groceries and toilet paper if it was on sale during the impending viral apocalypse? 

Of course you would.

Why it is that stock market investors are in panic mode when prices drop? I think anyone in their asset accumulation years should be praying for low stock prices for years to come. I do!

Over the last few years I’ve learned to train my investing brain. 

I’m inclined to make new purchases in established dividend paying stocks when they are out of favour – when their market prices have fallen and when the talking heads are beating these companies up.

I continue to rebalance the Canadian portion of my portfolio by leveraging ETF XIU – and aligning my stock allocations to be somewhat in line with that fund. 

XIU Summer 2019

Image courtesy of iShares. 

You can read up how I rebalance my portfolio here.

As Jonathan Clements, a former Wall Street Journal columnist once said:

“If you want to see the greatest threat to your financial future, go home and take a look in the mirror.”

This implies that successful long-term investing is directed tied to your emotional fortitude and behavioural discipline. While poor investing decisions can and may very well occur from time to time, it’s important to learn from them. It is therefore imperative that investors recognize their behavioural pitfalls before committing to any decisions which can affect their investment goals.

Conquer the enemy in the mirror to avoid sabotaging your portfolio

As a passionate DIY investor, whether you decide to hold a blend of individual stocks and ETFs for wealth creation, you focus on real estate, you believe in gold and U.S. treasuries or any other asset class, I believe the lessons to avoid personal finance sabotage are simple, universal and repeatable for all:

  1. Keep a modest and consistent savings rate for investing purposes.
  2. Keep your money management fees low.
  3. Consider diversifying your assets to mitigate risk.
  4. Embrace market hysteria as reasons to buy more and hold more.

With these lessons learned I’ve come to realize investing might be as exciting as watching our laundry tumble in the dryer. That boring process doesn’t mean it can’t work incredibly well.

Any lessons learned you wish to share?  What other ways do investors sabotage their portfolios? Do share in a comment below! Let me know your lessons learned too!

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

49 Responses to "How I used to sabotage my portfolio"

  1. Thank you Mark for this great article,
    I’m only on my third year with diy investing but i already have my fair share of mistakes and my biggest one was staying away from emerging markets but yesterday i bought VEE and it felt so good for some reason even though it makes only 6% of my portfolio but at least now i got that part of the world 🙂

  2. Hey Mark

    Good article to generate very worthwhile discussion. I agree with point 1 on mutual funds but not on points 2 & 3 on diversification and market corrections.

    I think most investors over a certain age are guilty of the mutual fund problem. In our defense, I will say that back in the day, unless a person was really into investing, there wasn’t much other choice.

    I am not a believer in diversification. I’d rather buy the sectors that I like and that are less volatile. My wife & I totally avoid fixed income, precious metals, any directly related commodity company (ie: mining, oil & gas producers, etc), tech, and consumer related, to name a few. As I previously mentioned, we are 100% TSX listed dividend income/growth stocks and 2 ETFs limited to 5 sectors – utilities, banks, pipeline/midstream, REITs, and telecom.

    I also don’t like the “keep some dry powder” approach. I’ve always just invested whatever extra cash was available when it was available. Keeping un-invested cash just seems to me to be an attempt at market timing.

    Anyway, one of the greatest things about investing is all the different approaches. Ours is quite different but I know we’re not alone (ie: Cannew/Henry Mah being the prime example). I think a big one in investing is to develop a strategy and stick with it.

    Take her easy

    1. You know, you’re not alone on this diversification thing. I’ve heard from many investors over the years that they believe in a handful of concentrated stocks vs. mass diversification. This is because, of course, not all stocks are created equal. We also avoid precious metals. I do believe however in owning more CDN or U.S.-listed ETFs that own the U.S. market. I’ve learned that I’ve missed out on a major tech run of late by not owning VTI, VUN, XUU or more tech-focused QQQ over time.

      So, I will own more U.S. assets over time. That’s not to say I’m going to give up on my 30 CDN dividend stocks. I’ll keep owning them and DRIPping them. I just feel I have enough CDN content and need to diversify into the U.S. as a hedge against our oil and gas-focused energy economy.

      It’s still hard to wrap my head around how Henry has so few stocks! 🙂

      Thanks for your comment.

    2. I appreciate your comments. My investment style seems quite similar to yours although I don’t own any ETFs.
      I too am a Henry Mah fan as well as a Tom Connolly subscriber.
      I’m not familiar with ‘Cannew’. Can you give more info on Cannew?

      1. Hey Beynt

        Cool stuff.

        Cannew is just Henry Mah’s handle when he posts on Mark’s website.

        If you don’t mind sharing, how many stocks to you own and what’s the Canadian/foreign split? Do you own any fixed income?


    3. Well, I do heavily invest in utilities, banks, pipeline/midstream, REITs, and telecom, but other than FTS and EMA, almost everything else didn’t have good returns since I began my journey late year 2017. Meanwhile, CNR, MRU, IFC, ATD.B did very well for me. Too bad I didn’t have much of these as their dividend yield rather low. Surprisingly, bonds etf I hold actually doing better than many of my bluechip dividend stocks. A big mistake was that I didn’t invest in tech which outperformed everything during the pandemic. Right now I am patiently waiting for nasdaq to go down and I plan to build an HXQ position in my taxable account for the growth only.

      So I am one really believing in diversification as I don’t think I can predict what will happen to my investment and I would never know what would be safe. Before the pandemic, REITs look pretty safe. But look at HR.UN, not only I lost half of my asset value, but I also lost half of my investment income. Good I am not retired yet, still time to make it up.

      1. Hello May, read your comment and i felt like saying that perhaps you should allocate a portion of your portfolio to indexing , i have VCN and VUN part of my portfolio with other etfs and they’ve weathered the storm pretty well specially VUN because it has everything Tec pharma utilities teleco you name it .
        just my 1 cent 🙂 i’m not the world expert but few years ago Jack boggle became my hero and one of his famous quotes was ” Don’t look for the needle in the haystack . just buy the stack ! “

    4. Your making some very good points Don. We made the same mistakes most new investors make. But if you are an investor and learn as you go you realize what Mark has said before, advisors are no smarter than anyone else. And with all these blogs around it’s not that hard to figure out what works. We learned that some sectors are just too volatile to give you a consisted return. What a lot of investors overlook is the diversification that so many of the great Canadian divided payers give an us. The banks, utilities, telco’s, provide their services to every sector in the country, as well as internationally in many cases. This is great diversification.
      We also have built a divided paying portfolio that avoids the sectors you mentioned, have no FI, and always deployed cash when it became available. No we are retired with more dividends that we ever had in salaries. Why pay any fees when you can DIY?

  3. Great article Mark ! Totally agree, in my 20s/early 30s, I was investing via mutual funds and I’m so happy to have discovered the passive investing / dividend strategy with ETFs + stocks, less fees + more income ! I wish I knew before, but so happy now + my net worth has drastically increased ! Bloggers like you, really motived me ! Thank you so much Mark ! ???

    1. Well thanks very much! I’m definitely a hybrid investor (mix of stocks + ETFs for extra diversification) but that process does seem to keep me invested (rule #1) and motivated. I suspect it can work for others as well 🙂

      All the best,

  4. Wow, wonderful. I didn’t realize you had been documenting your journey publicly since 2011. I have been working on my dividend portfolio since 2012 but I didn’t start blogging it until this year. I have also made a number of blunders throughout the years. But now I think my portfolio has stabilized and starting to mature. There are still a few things I need to do such as transferring some US stock in-kind to my kids RESP, but other than that I am just adding to existing holdings with the dividend income.

    1. Ya, old guy 🙂

      Kidding of course and yes, the blog is rather old and I’ve been running it for years. Other than owning more U.S. market-like assets (CDN or U.S. ETFs that track the U.S. market) I’m rather comfortable with my holdings. I just need returns and time on my side to reach our $1 MM goal. It should happen!

      Thanks for your readership!

  5. My biggest mistake with investment was ignoring my accounts for almost ten years. But it’s good I didn’t ignore them until the day of retirement. Better late than never I guess.

  6. I have made all those mistakes, Mark. Thankfully, I switched to index ETF investing several years ago. I’m been talking to my son about index ETF investing and he expects to start shortly. I wish I had started at his age. The fees I could have saved!

    1. Imagine the savings for sure! In the same boat but now you know and your son can potentially be far wealthier for it! That’s a blessing!

      All the best to you!

    1. I hear ya. 🙂 Looking forward to sharing your article soon. Just need a bit of editing time! Well reply to you my friend.

      On subject #3 – are you buying anything lately?

  7. Appreciate your article. When you discussed diversity, my etfs certainly can do that…but what I don’t think I’m diversified in perhaps is the currency my Canadian/US etfs are in. This is really a question I have: by having international/global etf investments, if foreign companies do well and also have a favorable currency to ours, do I also benefit that way? This area is a cloud for me, although I know Peter Schiff seems to think this is pretty important.

    1. Well, there is currency risk with owning foreign stocks but either you own in those currencies or you can own via primarily CDN-listed or U.S.-listed ETFs.

      I do the latter.

      You can own ADRs though. An ADR is a certificate that represents shares of a non-U.S company. The shares underlying an exchange-listed ADR are purchased on the company’s home stock exchange and held by a custodian bank in the home country. Also, ADRs can be purchased through all Canadian investment brokers, including discounters. Buy and sell procedures are the same as for U.S. domestic stocks. Be mindful those transactions including dividend payouts are in U.S. dollars.

      Further reading for you:

  8. It’s good that you’ve made this article here. I have done some of these things to my portfolio, so I think that I have sabotaged my portfolio a bit. I need to make some changes to my portfolio as soon as possible now.

  9. It’s certainly tough when the dollar is tanking…so I’m simply saving up more money now for purchases in the future. Also, you can hold an indexed CDN-listed ETF like VUN to substitute for VTI.

  10. Surely did some of the “Too much tinkering and chasing performance” when I started. Not all my moves were bad, fortunately, since I managed to buy my first house with money I gained from the market. Still, my investment strategy is a lot more balanced and constant now, and it surely pays off in the long run.

    1. Well, I probably still tinker too much since I’m a dividend investor and not a 100% indexer. At some point I’ll index more and spend less time on the portfolio – it just makes too much sense not to index invest.

  11. Another lesson I’ve learnt is to try and focus on the savings rate which is something I can control. No one knows what the market will do in the future (including myself) so there’s really no point in trying to guess something you can’t control. My lesson – when you can’t control the markets, focus on your rate of savings

    1. A very good thing to focus on Dan, your savings rate, and what you can control. Taxes to a degree can be focused on as well. Inflation, rates of return, out of your control.

  12. I finally got my son to invest his money, hopefully the best way for him. We worked out a diverse allocation using ETFs and Questrade, which doesn’t charge any fees for buying ETFs. He had $100,000 and plans to leave it there for a long time, he thinks retirement, but I think he might want to use it if/when he buys a house. Every year he will move the allowable amount into his TFSA and re-balance once or twice a year.

    I’ve been after him to do this for a couple of years, he is now 26 and is a student again, but can live on the stipend and scholarship they give him.

    I am not one who much wants to buy individual stocks. But last year I purchased an expensive medical device for my daughter, which also has expensive ongoing costs. It can cost $5000 per year and only the lucky ones have medical insurance that covers it. Within a week we loved this device so much I thought I should invest in the company, I would only do this for something that I knew really well. In just over a year the stock has gone from $34 to $81 and now I don’t know if I should sell some of it or not. The gain will pay for five years of buying the product, lol. Its a hard decision to know whether to sell or not.

    1. Impressive, a student in his 20s with $100,000 to invest. I think maxing out the TFSA is an excellent idea.

      True enough when it comes to stocks. We typically buy and never sell so when it comes to being unsure about any stock we simply sleep on it for a few weeks or months and just put the money into an indexed ETF.

      1. Bindu, I got a notification about your comment. Oh my goodness, five years ago……My son graduated this year (sad, no ceremony but re-scheduled for next June) and is now working in the USA. So he had to sell off his TFSA due to their regulations/laws.

  13. You should have seen me during my first foray into self directed investing in 2007 and 2008 when the markets crashed. I was trying to time the market with ETFs and leveraged ETFs during the wild swings they were having because I noticed a pattern of quite a large upward bounce after every big drop. I’d wait for a big drop, try to catch the falling knife, buy in just before the bounce, and then sell after the bounce. Surprisingly it actually worked reasonably well and I made some money for a few weeks but then I eventually woke up and stopped doing it before I made a big mistakes.

    I was playing with stop losses and other things to partially protect myself from losing everything, but I really didn’t know what I was doing. Even idiocy and can turn out ok if you get lucky I guess. I didn’t get lucky with my insane yield chasing of Yellow Pages though. It was a good lesson to not pick stocks and to mostly stick with index investing though.

    Live and learn!

  14. Thank you Mark for the great article. Healthy investing is like healthy eating. One may know what is needed to be financially healthy but we keep finding ways to depart from sound investing just as we tend to buy unhealthy food products. Hot tips and so called bargains tend to lead us astray from our plan as you pointed out.

    Thanks for the needed reminder. Almost all my 2015 individual stock purchases are lagging the ETFs that I hold as my core portfolio. Most are in the energy and mining sector… but who knows a few years from now these choices my look brilliant. Now I am just losing a bit of capital (paper loss) on these purchases. Luckily, they are all Canadian dividend paying companies so I still get real money added to my investment account.

    1. Great point about healthy investing. Hot tips are largely like potato chips. I like them, they taste good but the tips/chips are not good for you.

      A paper loss is nothing and although I’m down a bit on my energy stocks I intend to buy more this summer. I figure this is a great buying time. 🙂

  15. Been there done that on paying MER’s as high as 2.5% on mutual funds and chased last years winners for numerous funds or various sectors. I also have been guilty of not doing enough research for some funds or individual stocks after hearing or reading tips in years gone by.

    Fortunately I have largely been able to avoid this kind of self sabotage for about 60% of the most recent time I’ve been investing- around 34 years total.
    I finally realized after years of under performing the market that equity indexing was the best choice for me, with good global diversification and a bias on low volatility, along with a good smattering of FI, now that we’re retired and capital preservation is more important to us.

    I absolutely agree with your 4 points. I’ll add a 5th that I think is equally important and beneficial and might have been my wisest investment decision of all.

    5. Start saving and investing early even if amounts are small. Time is perhaps your biggest friend when it comes to growing your assets.

    1. I’ve also learned the value of equity indexing – it makes sense on so many levels and we’ve been doing this more as the years have rolled on. I think as we get older more fixed income is in the cards for us as well, likely 10-15 years from now.

      I like your 5th point!


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