The average investor earns around three percentage points less over 20 years than the market they buy. Not because of the products but because of behaviour. The seven mistakes and how to switch them off.
In short
- Timing: whoever misses the ten best trading days in 20 years halves their return.
- Home bias: Germans hold 40 percent of their equity wealth in German stocks that make up three percent of the world.
- Loss aversion: holding losers, selling winners, the opposite of right.
- Costs: one percent of fees a year eats a quarter of final wealth over 30 years.
Mistake one: market timing
Selling when it falls, buying when it rises. That feels right and is the most expensive mistake. Studies of the MSCI World show: whoever misses the ten best days in 20 years halves their return. The best days almost always come right after the worst. Whoever sold in March 2020 missed the recovery in April. Solution: savings plan, fixed allocation, calendar instead of price.
Mistake two: home bias
German investors hold around 40 percent of their equity wealth in German shares. Germany makes up around three percent of the world market. That is a lump of cars, chemicals and banks no diversification justifies. The same goes for your own industry and employer: whoever works at a group and holds its shares bets salary and wealth on the same card.
Mistake three: loss aversion
Losses hurt twice as much as gains please. So investors hold losers until they are back at zero and sell winners to lock in the gain. The result is a portfolio full of bad shares. The market does not care about your entry price; the only question is whether you would buy the share today. If not, sell.
Mistake four: overconfidence
Three good trades and you consider yourself talented. Men trade 45 percent more often than women and therefore earn around one percentage point less a year. Every trade costs spread, fee and tax, and every trade is a bet against someone who knows more. Solution: write down trading rules, at most four transactions a year.
Mistake five: herd behaviour
The neighbour made money with crypto, the paper writes about hydrogen, everyone talks about AI. When a theme is everywhere, the price is already there. Theme ETFs typically launch after the peak of attention and lose against the world index in the following three years. Solution: buy nothing that was in the news this week.
Mistake six: ignoring costs
One percent of fees a year sounds like nothing. At €300 a month over 30 years and six percent return it makes €300,000 instead of €240,000 of final wealth, a quarter less. Active funds, insurance wrappers, wealth managers and frequent trading all sit in this range. Solution: keep total costs under 0.3 percent.
Mistake seven: no plan
Without a written plan the mood of the day decides. The plan contains: goal, horizon, allocation, savings rate, rebalancing date, and what you do in a crash (nothing). Two pages, read once a year. Whoever has one makes mistakes one to six less often.
Frequently asked questions
Is a dividend strategy a mistake?
Not a mistake but a misunderstanding: the dividend is deducted from the price; it is not a bonus. Whoever likes distributions takes a distributing world ETF instead of individual stocks.
What about stop-loss orders?
They sell automatically in a crash, so at the worst moment, and the share is often quickly back up afterwards. For long-term investors they are a timing mistake with automation.
How do I know I trade too much?
If you open your broker more often than your banking app, and if you remember prices but not business models.
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