I’ve been tagged by The Dividend Guy to name my top three investing mistakes. I ended up going on a bit of a rant with one of them so I’ll just quickly mention that the first two mistakes are:
- Selling equities when the market went down.
- Not knowing anything about investing or the funds that I was investing in until a couple of years ago.
and the third mistake…
Investing for tax reasons
Way back in the late 1990’s there were a pile of new investment funds available called Labour Sponsored Investment Funds. These funds had some pretty good tax breaks because they invested in start up companies and the government wanted to promote investment in that area. For some reason these funds had to have an association with a union for this tax break to occur which should have been a red flag right there. They invested in small companies which could either be private or public.
I invested in these mainly because of the tax break but also because of the potential of the unproven companies. I figured since I had a long investment timeline then I could handle any amount of risk right?
Well, thanks to the long vesting period of these funds – you have to hold them for eight years otherwise the tax credit has to be paid back, I still own these dogs. The funds have changed names several times but it’s still a little bit of my money. Another great thing about these LSIFs is that the MERs on these funds are usually around 4%. I’m so happy that while my investment dwindles – some crooks…errr, I mean investment managers are getting fat off my money.
Interestingly enough the book value of my LSIFs is $15,500 and the current market value is about $5500. Keep in mind – the average purchase date was around 1998.
I calculated a while back that if I had taken the equivalent amount of money (without the extra tax credits) and just invested in a normal Canadian mutual fund (high fees and all) I would have about $30,000 right now so this mistake cost me around $25,000.
As you might have guessed, even a whisper of the words “labour sponsored funds” makes my blood boil. Recently the government announced that they would stop the extra tax credits for LSIFs investments which is a great move but I wish they would have investigated some of these funds to find out exactly where the money went. I suspect if you could interview friends and neighbours of these “fund managers” you might find that quite a few of them had rather unsuccessful start up companies in the late 90’s paid for of course, by LSIF funds.
I’m going to tag the following bloggers:
Canadian Dream – I don’t recall Tim talking about any of his investing mistakes..maybe he hasn’t made any?
Million Dollar Journey – This guy is into every type of investment and trading strategy you can think of so I’m sure not all of them have worked every time.
The Dough Roller – Another big time investor – I’m sure he has a story or two.