Oh, that sweet smell of a new brokerage account, a successful money transfer and confidence to boot! The world is mine for the taking, this is gonna be awesome, this is FREEDOM! MWUAHAHAHAHA!!!
…and then it’s not so awesome anymore. Let me tell you a story.
Class photo: 2003
When I started out FNB just introduced a new product: FNB Share Saver. It’s brilliant for the new guy who knows nothing about ETFs or unit trusts and comes with the sales line that it will invest in the top 100 JSE shares (ooooh!) for you all at a very VERY good cost of 0.1% per transaction. A few clicks later and I was up and running within 10 minutes (being and FNB client already). AWESOME!
Fast forward a few years, articles, blog posts and co-workers bragging about how Satrix INDI is going to make them retire early and I quickly realised that FNB’s Share Saver is not for me anymore. I have outgrown it and it is flawed!
So what to do? Well, checked Google Finance and that other NFSWIX ETF looks good, performs better than the Top 40 FNB uses so let me put my money in there. Who needs midcap anyway, I’ll sink all of it into these bigger shares - they’re big for a reason!
Too big it turns out. Somebody mentioned that Naspers and SAB are very overweight. I checked the internet and it is true. This is not a safe investment at all! Luckily Coreshares has this CTOP50 ETF. My research shows that the Top 50 is the new Top 40 and this one is market capped at 10% so obviously this is the way to go.
Hold on a second. Why did I just invest in another index tracking ETF? Factor investing is way better (a recent blog post convinced me) and NFEMOM looks like a sure winner. The way it determines which shares to invest in makes sense. What we’re looking for is quality shares with momentum people! NFEMOM caps each share at 12% and is borderline “active trading” but still an ETF. Wish I saw this one earlier!!
It turns out NFEMOM is one of the most expensive ETFs out there because of the way it works since September 2016. It rebalances monthly whereas most other ETFs rebalances on a quarterly basis. Yes, it’s close to being “active trading” but why is that a good thing?
By this time though I had come to realise that all the buying, selling and swapping of my main “domestic” ETF has cost me quite a bit of money and I’m definitely not looking to make another impulsive mistake. See, every time I changed ETFs I paid brokerage and transaction fees x2 and given the way the markets have been performing the last three years I would’ve probably been better off just leaving it all alone.
But, alas, here I am. Water under the bridge. The ship has sailed. Th fat lady has sung. Both Elvis and Frasier has left the building.
It’s not all bad news though. All this money I “wasted” paid for my education. I know so much more about DIY investing: the importance of costs, what a market maker is and how they only trade at the NAV, how different ETFs work, that there is such a thing called factor investing, the difference between limit orders and market orders, that a GOLD ETF is never a good idea (ok, irrelevant for this post but I thought I’d tell you any way since I already paid for the both of us). This list goes on and on.
I’ve done the costly part for you - because I’m a great guy! - so there is no need for you to repeat my mistakes. When you start out investing do your research - and by research I mean read through the ETF blog posts on JustOneLap or the Intellidex commentary on ETFs - and realise from the start that this is not where you should be looking for excitement. Pick the ETFs (or shares, unit trusts etc) that you want and stick with them. In other words, don’t go sell all your DBXWD to buy STXWDM because it is brand spanking new.
Keep it simple and keep it boring.