The Bad Investor: My Final Trading Error
In 2016 I was pretty sure the world was going to end when Trump got elected as president. The Stock Market was already at all time highs from the bottom of the Great Recession and I wasn’t going to let this new president tank my money and the country at the same time. I sold everything and emptied my Roth IRA (only of the contributions). My Roth money I put into my savings account for a house. With the rest of my investment money, I waited for the economy and Stock Market to tank. And I waited. And I waited.
It never crashed. So many people have these same thoughts about Biden’s election. Learn from me, do not bet against the United States’ innovation & the strength of our economy; it is much bigger than any administration.
I sat out of the Stock Market for 3 years. In 2019 I started buying 1 share of SPY (following the S&P 500) per month. If there was a dip, I would buy more shares.
In March 2020, I was given an incredible gift! Over the course of a few weeks the Stock Market dropped 40% and at its low was back to prices when Trump was first elected. I was buying the entire dip and had finally reinvested all of IRA account. Yipee! This massive trading error had been erased. Phew and I was counting my blessings.
Until …
One of my students introduced me to an inverse ETF. I had never heard of this investment option. This was a way of shorting the Stock Market and making money when it goes down. In May 2020 the Stock Market was rapidly recovering even though we were in the depths of a global pandemic and most of the country was on lockdown. The Stock Market and the economy were so out of whack, they would eventually have to converge. So I started selling all of my newly bought shares and buying the inverse ETF (SPXU). Oi vey I am such a dumbass. All of our past recessions had what is called a Bear Bounce. This means there was a quick surge from the bottom which was then followed by another more significant decline. I figured if I bought the inverse, I would make money on this inevitable second decline and then buy all of my shares back. The one thing that is certain in trading is that nothing is certain.
This bear bounce never happened and my inverse shares (my entire portfolio) continued to lose significant value over the course of the next 12 months. I gave myself until May 2021. If my investment had not worked out during the course of that year, I would sell at a loss and move on.
The loss was 75%!!! I will never make that money back. If the Stock Market (S&P 500) returns 10% per year, which means your money doubles every 7.5 years, it will take over 14 years to get back to even ($21,000). Meanwhile my original investment would have gone from $21,000 to $84,000 in that same time. The compound loss of this money is epic.
The things I have learned being a bad investor:
Do not bet against the U.S. economy; it is larger than any administration and U.S. companies will continue to innovate and grow.
Do not try to time the Stock Market. In the long run the Stock Market goes up, in the short run, I don’t know shit.
Don’t wait for a dip. Buy every single month (dollar cost average) and let my money work for me.
Buy an ETF that follows the S&P500 and stop f**king with my investments.
Following these rules means I take the emotions out of investing and invest consistently every month. This is what is needed to be a good investor and to build wealth and financial security. Please, please, please learn from my mistakes and do better. Financial freedom is available to all but we have to know what we are doing with our investments to make wealth building our reality.
When you know better, you do better. I have transformed all of my research and Stock Market learnings into an investment course. If you want to avoid my mistakes and learn how to build wealth through investing please sign up for my class. To learn more about my personal finance class Road to Financial Freedom, please see my website.
Much love,
Ms. Rigley