Dear Stackers,
Today I want to share something personal with you – a little story about my investments and the importance of sticking to your strategy, even when the situation requires some extra effort. Otherwise, you could lose a lot of money...
Here’s the thing: When Sbanken was closing in October, I had to find a new place for the investments in my Holding (a corporation where I previously owned shares in Pareto and now in Stack). When we finally launched Stack for businesses, it was natural to transfer everything to Stack (since I’m the founder and CEO of Stack).
But during the transition, I made a somewhat lazy decision. I put all my money straight into High Yield (high-yield bond funds), even though this money is supposed to be my pension. There weren’t great pension arrangements at Pareto or Stack, so I actually need to save a bit extra for my retirement. I’m using my holding company for this, so I don’t have to pay taxes on the dividends I received when I was at Pareto. Since my investment horizon is long, my strategy is to bet on more high-risk stocks and equity funds within this company—you know, the exciting stuff like startups, real estate, small caps, technology, and some Norwegian and global index funds.
So why did I suddenly lower my risk by investing in high yield? First, it was laziness. I just wanted to transfer the money, and we didn’t have that one fund, so I had to find an alternative, and then human psychology took over. The real estate and small-cap sectors have been struggling lately. These are uncertain times in the stock market, so maybe the best risk-adjusted returns are in high yield? I thought, “I’ll adjust back before Christmas. It can’t hurt.” (By the way, this goes against my own advice: I’ve previously pointed out how foolish it is to choose lower risk after losing some money in a high-risk fund – you’re almost guaranteed not to recover the losses. Lower risk also means fewer gains when the market swings upward!)
Well, I was wrong. November turned out to be a fantastic month for funds. One of the best ever (crying-laughing emoji). During the period I was out of the market (10.10), my stock portfolio would have earned 18,500 NOK if I had chosen the same or similar funds that I had in Sbanken. Instead, my portfolio increased by only 5,000 NOK. That’s a loss of 13,500 NOK in a short period – completely unnecessary! Especially since real estate soared (up 20% during that period!), which was where I was most skeptical.
This taught me an important lesson: Don’t deviate from your strategy – even for short periods. A lot of the extra returns happen in short bursts, so you risk ruining your entire return by going in and out. It would have taken me an extra 10 minutes to just move the money into the right fund immediately...you can’t time the market, so you won’t benefit from it anyway. Period. I know this already, but clearly, it’s something you have to remind yourself (and others) of frequently.
Based on my experience, here are a few tips:
- Do you know what your strategy is? Do a quick check once a year to see if the risk still aligns with your time horizon, desires, and needs. If yes, stick with it!
- Don’t make impulse buys: Even when you’re in the middle of big changes (like switching banks/investment platforms), trust your original investment plan. Don’t switch just because, for example, a fund was liquidated into cash (in that case, find a comparable alternative) and something else is trending at the moment.
- Long-term thinking is key (at least when it comes to pension): Remember that investing is a marathon, not a sprint. Don’t let small changes knock you off your course.
After this mistake, I reverted to my original strategy. I would have been better off doing nothing rather than moving into High Yield. Unfortunately, I was forced to do something (DNB didn’t have all the funds, so they would have sold two of them anyway), and that’s when psychology took over. I would have had 10 minutes, if I had prioritized it. And I would have earned 13,500 NOK.
So, to all of you out there with investments, or those planning to invest: stick to your strategy. It’s the best way to ensure your investments align with your long-term goals.
Happy first Sunday of Advent <3
Best,
Madeleine from Stack
PS! The funds I currently have can be found on the Bjørnestad Foundation AS profile.
The picture is made with Chat GPT 4 Dall-E
