Are you buying ASX shares as a beginner? Congratulations! Investing in shares is one of the best ways to build long-term wealth, achieve passive income, and perhaps even retire early.
But, like any other asset class, investing in ASX shares successfully is not easy. There are many mistakes you can make along the way. It's fine to make mistakes, how else would we learn?
So here are some of the things I'd wish I knew before I got started with investing in shares. Hopefully, you can avoid making the same errors as I did.
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3 things I wish I'd known when I started investing
Index funds are your friend
An index fund like the Vanguard Australian Shares Index ETF (ASX: VAS) is a single investment that puts your money into a basket of shares. In most cases, it will be the 200 or 300 largest shares on the share market. With an index fund, you are getting the return of the broader market, no more, no less.
When I started out, I had grand plans of smashing the market, year in, year out. But being able to do this takes a lot of time and experience. I wish I started investing in an index fund as my first investment rather than choosing the individual shares I did at the start of my journey.
These days, I invest in both index funds and ASX shares. That way, I can get the market's return on some of my capital while using the rest to try and achieve outperformance. But I wish I had started out that way. If I had, I would be in a better financial position today.
You can be too diversified
As a beginner investor, you will constantly hear about the benefits of diversification or 'not putting your eggs in one basket'. This is sage advice. But it is possible to have too much diversification. When I started my investing journey, I wanted to have a finger in every pie.
I held dozens and dozens of shares after a few years, covering emerging markets, the US markets, the ASX, and 'alternative assets' like water rights and property.
But after a while, I realised I had too many investments in my portfolio to properly keep track of. And this started to hurt my returns. If I could go back and do things differently, I would stick to a portfolio of 15-20 investments that I have a deep understanding of from the start.
Boring can be best
When I first began my investing journey, I loved investing in exciting companies that were 'disruptive', were 'doing things differently' and that I found exciting. As the years went on, many of these investments turned out to be lemons.
Today, I have rediscovered the beauty of a boring investment. Companies that have been around for decades might not be the most exciting investments out there. But most old companies are old for a reason – they know how to run their business, sell their products, survive and thrive during the inevitable recession.
That's why some of my favourite investments today do not feature the likes of Zip Co Ltd (ASX: ZIP), Brainchip Holdings Ltd (ASX: BRN) or Nuix Ltd (ASX: NXL)
Instead, some of my favourite investments include Washington H Soul Pattinson and Co Ltd (ASX: SOL), Coca-Cola Co (NYSE: KO), Wesfarmers Ltd (ASX: WES) and McDonald's Inc (NYSE: MCD).
Sometimes, especially for new investors, boring can be better.
