Alan Donegan: PopUp Business School Co-Founder, Entrepreneur, Financially Independent Pizza Lover, Marvel Movie fan and soon to be Script Writer
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Every time I looked at the Key Investor Information Documents on the Vanguard website my brain would melt and I would go do something/anything else instead!
We were worried about Trump getting into office in November'16 because we thought the market would drop, we were worried about Brexit and potential currency risk. We worried about investing and the market crashing immediately and loosing a fortune. We worried about EVERYTHING! This worry stopped us from investing. The question we have only just asked ourselves is "What did this worry cost us? What did we miss out on through our indecision?"
How much did we lose?
Katie and I were earning good money at the time, we were stacking away the cash month by month! We had low expenses and we had a huge savings rate. We were so proud. We just didn't know what to do with all this money that was mounting up! First world problem I know! Still a problem!
Katie had been reading Mr Money Mustache and we were learning about Financial independence. She spotted a Financial Independence Chautauqua (retreat, get together thingy) that was happening in November 2016. Katie booked us on straight away and we were so excited to be going to meet JL Collins, the Mad Fientist and Mr Money Mustache!
We booked in March 2016 and the event was in November. We decided at this point to stop worrying about investing our money and wait until we went to the event to understand more and get comfortable picking an index fund! We paused everything!
For the next 8 months our cash sat in the bank earning hardly any interest! It was actually devaluing the longer we left it there. We let overwhelm stop us making a decision.
For obvious reasons we have never worked out how much money we missed out on by not investing. That is until now. I am not entirely sure I even want to know but I think it is going to be a valuable learning point both for Katie & I and for you. Learn from our mistakes and don't sit on the side lines!
Global versus Developed world
At the time we were trying to work out which fund we should invest in. Should we invest in the Vanguard Developed World? The USA fund? The UK fund? Emerging markets?
This choice paralysed us! Fear of the market tanking when Trump got in, Brexit and endless other risks stopped us in our tracks. The cost was huge.
But what was the actual difference that we were weighing up? Would it have mattered which one we had actually chosen?
Katie has gone back over the numbers to find out what our indecision cost us. This is not just to piss me off but to help you avoid the mistakes we made.
We delayed investing our money from March 2016 to November 2016. How much did we miss out on? Just in that period we would been better off by:
We should have just done it, invested and got into the game. All the funds we were looking at are very similar. They have similarish expense ratios. They are well diversified. I just couldn't bring myself to do it and was paralysed by choice.
Let's make it even worse
That £44,429 is just from March to November 2016. If we had invested in March and then allowed that investment to compound until now the number is even bigger. We would have made an extra £22,130 in compounding alone.
That means the real cost of our indecision was:
What changed at Chautauqua?
I was so nervous attending Chautauqua in Ecuador. I was surrounded by what seemed like all these incredibly intelligent people that had it together. The first day I sat in JL Collin's talk on the tenets of investing and I was blown away! He made it sound so simple!
We had one to one conversations with JL and the other speakers and each of them gave us such clear investing advice. The thing that struck me over and over again was the saying:
Time in the market is better than timing the market!
What they all repeated to me was that the earlier you get your money into the market the more time it has to grow and compound. If you are waiting outside the market for the conditions to be right and for things to change then you are missing out on growth.
Having actually met the people that were already Financially Independent and finding out that they weren't there to sell me anything and only wanted to help me become more successful gave me huge confidence.
Katie and I decided to invest the entire lump sum into the market the day after we got home from Ecuador. We took everything and put it all into the market in one go!
We chose the Developed World ex. UK fund and just got on with it and did it! We already owned a bit of the UK market and wanted to avoid home country bias.
Did we make the right decision? Would we continue to invest in the Developed World fund?
Hindsight is 20:20
You can only know with hindsight whether or not we made the right decision to invest in that fund versus the USA fund or emerging markets. There is no way to know this going into it.
Even if I worked out that we would have been better off in these other funds and not the Developed world fund that doesn't mean I should switch now does it? Just because over the last five years the other funds performed better doesn't mean they will going forwards over the next five years.
No one has a crystal ball and can see the future. We have no idea which country or fund is going to do better. All I know is that if I invest my money I will be FAR better off than if I keep it under the mattress.
Katie and I have become conformtable in the knowledge that we don't have a clue if we have chosen the right fund or not! We can never know until after the fact.
We have chosen not to work out which investment fund we "should" have invested in for the best results. The reason we have chosen not to work this out is because you can NEVER tell when you are buying and we still can't tell going forward now. There is no learning point from analysing this.
You can't predict the future
We made the decision to go with the Vanguard developed world excluding the UK index fund. There was actually no way to know which fund was going to perform better in the future. Neither Katie or I have a crystal ball and listening to the financial media generally confuses this more than it does inspire clarity!
No one can predict the future! There is no way to time the market. You have to just start!
Get in the game
Don’t sit on the side-lines letting the purchasing power of your cash erode with time. If your money is not invested it is decreasing in value every single week!
You are never going to make the perfectly optimum choice when starting out investing. It is to better to get 80% of the results than to get none of the results at all through paralysis. You just need to start! If you've read the previous articles in this series you'll know that we believe that buying a broad based, diversified index fund is the best way to invest in the stock market. If you haven't go back and read them now! All the content in this article assumes you are going to buy Vanguard index funds.
Katie and I hope that from writing this article you will be inspired to start investing and get going on your journey to financial independence earlier than you otherwise would have!!
We missed out on sixty six thousand pounds through inaction and fear.
Start now, get in the game and start climbing the insurmountable mountain! If you start investing a little bit each month it is incredible how far that will take you!
That's great Alan but what if the market had gone down?
It's possible in an alternative universe that our indecision and inaction would have worked in our favour and that we would have been better off buying in November 2016 than March 2016 (because the stocks were cheaper in November 2016 than they were in March 2016). Of course we can never know that and the lesson remains the same. Get in the game and invest as soon as possible. The best time to invest was 20 years ago. The second best time is NOW. Millennial Revolution explained this perfectly in a recent article about their 2020 finances: "It never feels like the right time to invest. Either the stock market’s too expensive, or it’s crashing and scary. If you have the money, just invest."
You made it!
This is the last article in a series of 7 articles about Index investing. Congratulations on making it to the end!
What's stopping you?
Katie and I would love to know what is stopping you from starting. What is stopping you from investing, from taking control of your finances and getting going? If we can help you tackle these issues and get you going on your journey to financial independence and stability we help you create a happier life.
Our goal is to help you lead a happier and more financially stable life.
Thanks for reading our blog posts and please let us know what is stopping you in the comments below.
Disclaimer: This is not financial advice. Katie and I are not trained financial advisors, nor to we pretend to be one online. Read our full disclaimer here.