Two counter-intuitive elements
Investing IS different. A lot of the rules of thumb we normally use to guide us through life don’t apply, so unless we are aware of the differences it’s easy to lose our way.
Two of the most important differences are action and cost.
Normally it is better to take action. Action leads to results. People tend to regret the things they didn’t do, not the things they did.
But in investing, action is often harmful. If you buy and sell shares you end up paying more in transaction costs, bid spreads, and you risk selling at the wrong time.
On the other hand if you sit tight and let your investments grow over time they will have a chance to compound and you won’t end up trying to time the market.
The only action necessary is setting up your portfolio and saving system.
Normally, things that cost more are higher quality. If you buy decent shoes, they will last many times longer than the cheaper ones. Buying good quality can save you money over time.
But in investing, higher costs come out of your returns. Paying more for a fund doesn’t get you higher quality, it just gets you less profit.
The best example of this are hedge funds. They typically charge 2 and 20: 2% a year and 20% of any profits. Heads they win, tails you lose. I lost a lot of money investing in a hedge fund when I was young and stupid.
The best way to help yourself with both of these behaviors is to invest in cheap index funds. In Japan the Maxis Global Equity ETF (with the code 1550) only costs 0.25% a year and includes thousands of stocks from around the world. It’s probably a good place to start your research.
Any other good Japanese ETFs?