NOTE: we do our best to share general resources so you can do your own research. When it comes to tax, this is personal to your investing and financial position. We are not a tax adviser, and don't have any information about your personal situation. When investing, there may be tax implications and you should get advice from a licensed tax adviser.

In this journey towards Financial Independence, nearly every investor – seasoned or rookie – has had their cringe-worthy moments. Yes, we’ve all been there, done that, and probably got the T-shirt too. It’s about the missteps, the slip-ups, and the “I wish I knew that!” insights.

In this week’s episode, we're doing a countdown on five of the biggest investing mistakes to avoid based on research (and personal experience too). Plus, our community has been generous enough to share their own investing mistakes. These are the stories that transformed them from wide-eyed rookies to confident investors. As much as we invest to make money, sometimes the best investing lessons are learned the hard way – through our mistakes!

5. Overlapping ETFs

One trap many investors fall into is what we'll call “ETF overlap”. It sounds technical, but it's pretty straightforward. Say you're eyeing ETFs like Vanguard's Diversified High Growth (VDHG) , Vanguard's Australian Shares (VAS) , and iShares' Core S&P/ASX 200 ETF (IOZ) . They all sound great, but they might have significant overlap in what they invest in.

Think of it like this: if VAS focuses on the top 300 Australian companies and EOS on the top 200, there’s a hefty overlap. Now, add VDHG to the mix, which includes a substantial Australian allocation, and you might find yourself unintentionally doubling down on Aussie shares.

Diversify to reduce investment risk

Why limit your investment to one playground when you have the whole world to explore? For example, only focusing on Australian ETFs may be putting all your eggs in one regional basket. Investing in various regions and sectors, like the U.S. sharemarket known for its tech sector, can mitigate systematic risk in one country or region.

Full disclosure: this shouldn’t be construed as advice against only investing in Australia (or any asset class, for that matter). Instead, think of it as a question to ask yourself: “Am I happy with this asset allocation, or have my ETFs overlapped by my own standards?”

Beware of hidden weighting in ETFs

When you pick a supposedly ‘diversified’ ETF, especially ones focusing on a particular index, the devil is in the details. For instance, in ETFs like VAS and EOS, a massive chunk of your investment is likely lounging in the top 10 or so stocks. That means the difference – say the additional 100 companies in VAS compared to EOS – might only form a tiny part of your investment.

Depending on your preferences, you might consider equal weight index ETFs , where a trillion-dollar company has the same weight as the smallest company.

4. Not understanding the tax implication of selling

Selling an investment sounds straightforward, doesn't it? However, there’s one thing that beginner investors may overlook. Selling your shares, ETFs, or even crypto is a tax event . It could turn a profit or a loss into a financial hiccup down the road.

In Australia, playing the long game with your investments can potentially come with a significant tax advantage. Hold onto your investments for over a year, and you may be looking at paying just half the capital gains tax. It's like a financial 'thank you' from the government for being patient with your investing.

Timing is everything

Timing of sale can also significantly affect your tax bill. One scenario is where you're enjoying a substantial income year. Selling your shares in that year might push you into a higher tax bracket, increasing your overall tax liability. Sometimes, it's wiser to wait, especially if you anticipate a lower income in the coming year.

Eligibility in government schemes

Selling your shares can ripple into areas like government subsidies and parental leave benefits. Ana talks about her experience of selling shares in the year she bought a house, which affected her childcare subsidy and paid parental leave.

Bottomline: Seek professional advice for tax planning

Tax planning can get really confusing when you throw selling shares into the mix. It’s also crucial that we stress that neither Tash nor Ana are licensed accountants or practising tax professionals. So, it’s always the best route to seek professional advice from a tax accountant. They can help you take advantage of government schemes and save you from future headaches.

3. Setting unrealistic expectations

Once in a while, even the best long-term investors daydream about striking quick gains in the sharemarket. It’s a common vision, but let’s ground it in reality.

While we often hear about the average 7% return in the sharemarket, remember, this figure shines over a long-term horizon. Think seven to 10 years or more. And if you’re trying to chase higher returns in a short span, that’s like surfing in stormy waters. Thrilling, but risky.

The myth of constant compounding

Compound interest is often hailed as the eighth wonder of the world. But it isn’t some magical beanstalk that grows money overnight. When it comes to investments, the growth isn’t always steady. Think of it more like a garden – some seasons yield more, others less.

Share price movement isn’t the only thing that makes an ETF or share worth keeping for the long term. Dividends add another layer to your total returns. However, for the international investors among us, currency exchange impacts our returns too. Tools like Sharesight can help track these varying elements, giving you a realistic picture of your investment journey.

Underestimating risk

Now, let's talk about risk – it’s like that uninvited guest at every investment party. Overloading your portfolio with speculative stocks, for example, can leave you vulnerable.

Here, diversification isn’t just a buzzword. It’s your financial life jacket to smooth out the ups and downs of the sharemarket. This means including different asset types in your portfolio, like (for instance) the presence of cash and bonds.

Keep your emotions at bay

Investing is an emotional journey too. The market will fluctuate, and so might your heartbeat. If your portfolio dips, take a deep breath. Remember, we’re in this for the long haul. Successful investing is a slow climb, not a quick sprint.

Now, there are times when an investment soars and you feel like Warren Buffett. It’s a great feeling, but don’t let it cloud your judgment that you end up putting everything in one basket. One success story doesn't guarantee another.

2. Not talking about money

Learning about money is nearly impossible if we never discuss it. It's a topic often avoided at home, in schools, and even among friends. But when you start breaking that silence, like Ana did, you're not just learning. You're opening doors in your career and personal development.

Share the load

Money can be a source of stress, but Tash reminds us that sharing your financial concerns can lighten that burden. With the rising cost of living, many feel the pinch, yet remain silent. By talking about financial struggles, you not only find empathy but also practical solutions and mindful support from those around you.

Learn from each other’s experiences

Ana and Tash's exchange about practical money-saving tips, like using fuel apps, shows exactly why we should talk about money more often. It's not just about cutting costs but understanding how others make financial decisions. For instance, Ana talking about her decision process in selling her apartment provides invaluable insights into weighing options. It’s something you might think you don’t need to know until you're in a similar situation.

Still, the money stuff we learn from others will only serve as a general guide to our own finances. What works for Ana might not suit Tash, and that's perfectly fine. Everyone has unique risk tolerances, experiences, and financial goals. By openly discussing these differences, we gain a more holistic understanding of the many financial paths available to us.

1. Just not starting

You’ve probably already guessed our number one because it’s one that we always highlight in this podcast. The most crucial step in investing is, quite simply, to begin.

We all have different reasons behind the hesitation, usually something about not knowing enough. Ana was once one of the many that felt this hesitation, and she regrets not investing sooner. While she managed some retirement savings in her twenties, it wasn't until her thirties that she actively embraced long-term investing.

You can't learn to ride by just reading about it or watching YouTube tutorials alone. You have to hop on and start pedalling. You learn by doing, by tumbling, and getting back up again. Similarly, investing requires action. Start with a small amount, understand that mistakes are part of the learning curve, and keep investing for the long term.

The best time to start investing was yesterday. The next best time is now. Every day you delay, you potentially miss out on the long-term wealth-building effect of compound interest.

Remember, every investor started somewhere and made their fair share of errors. Those missteps taught them resilience and savvy that cannot be learned from a podcast alone. As for Ana, her past mistakes taught her to focus on what she can control now: the frequency and amount of her investments.

Common pitfalls in investing: Lessons from the GRSC community

Our GRSC community has been there. They've got stories to tell, and there’s a wealth of lessons to be found. The most echoed regret is not starting sooner. The reasons vary – not knowing where to start, fearing they don’t have enough to invest, or just procrastination.

Aside from that, our community shared some relatable investing missteps:

Falling for the herd mentality

Listening to tips from family members or that infamous ‘friend of a friend’ has led many to invest in things they know nothing about. It's like the crypto craze a few years back. Suddenly, everyone from your Uber driver to the person behind you in the coffee queue had an ‘insider’ tip. The lesson? Solid research trumps speculations.

The panic sell and the overzealous buy

The market dips, and your finger hovers over the 'sell' button. We've all been there. The community shares this classic knee-jerk reaction in investing – selling when the market goes down. Similarly, investing too much, too fast in one seemingly ‘winning’ stock because of FOMO could get investors burned.

Emotional decisions often don’t pan out well for our finances. Often, the key to building wealth long-term is just to stay seated and be patient. The markets have their ups and downs, but historically, they trend upwards over time.

The misadventures in stock picking

Many admitted to not doing basic research before buying their first share or ETF. A particularly memorable confession from the community was investing in a brewery. Now we’re curious what’s the intriguing backstory to that. It’s an investment that stands out, but it's a reminder that unique doesn't always mean profitable.

Take action this week

Investing is a learning process, and mistakes are inevitable. But each misstep is a chance for growth and refining your investing strategy. Our community's experiences highlight the importance of just starting, staying informed, and keeping your investing strategy simple and long-term.

So, for this week, reflect on your investing mistakes, but be kind to yourself. Remember: every investor was once a beginner. If you're new to investing or seeking to upgrade your knowledge, our first 10 episodes will give you the leg up.

Don't forget to rate us, write a review, and share your experiences on our Instagram at @getrichslowclub . Or follow us at @anakresina and @tashinvest to join us in helping everyone become informed and confident investors.

Happy investing!

Tash & Ana