I have always been fascinated with investing and money. Maybe it is because my parents didn’t have a lot of money and I dreamed of lifestyles of the rich and famous or MTV Cribs. I still have that fascination and I will fully admit that a guilty pleasure of mine is watching shows on Bravo or House Hunters or even just going to open houses of homes that are certainly out of my price range.
I remember that when I started investigating colleges that one of the things I wanted to be was a stock broker. Movies like Secret to My Success (Michael J. Fox) and Wall Street (Michael Douglas, Charlie Sheen) fascinated me. I wanted to move to New York and take over the world.
Well that didn’t happen and it will never happen and I am ok with that. But I am still fascinated with money, investing, real estate, and a whole host of other subjects involved and my first investing experience taught me some valuable lessons that I think stay with me today.
So when I got out of college I had degrees that were somewhat marketable (I could speak a second language) but I wanted to make the world a better place and was getting job offers that offered salaries in the low 20s and the like. So instead I went to graduate school, started teaching, and I found what I wanted to do. But between grad school gigs I was working five different jobs (at the same time). Because of this and because I was living with my brother in a very cheap apartment I was able to save up a nice little chunk of money.
Part of that money was for me to continue my education because I knew I wanted to go on and get my Ph.D. someday and would need money to buy furniture, rent an apartment, etc. However, this was also the late 90s when the investing world was on fire. I thought this would be a great time to invest. I was 25. I had never opened up an investment account, but I wanted to get in on the action.
So I went to my local chain bank (I didn’t even know about Fidelity, Schwab, etc) and talked to someone there about what I should do. That person recommended I open up an IRA. I could get a tax deduction and could begin my journey to financial riches. At the time the maximum contribution was $2000. So I made that contribution, but didn’t know what to invest in. I didn’t know what mutual funds were, but I had followed the stock price of my dad’s company for years. So I took that $2000 and decided to invest it in stocks.
I bought two sets of stocks: Wells Fargo and Mossimo (a clothing company). I am not sure why I bought either one of those companies, but I think I saw a lot of people wearing Mossimo and thought it was going to be hot. So I bought the stock late in 1999 and checked the price every day. I thought it was going to go through the roof (it didn’t).
It was ok for about six months, but then the economy and stock market started to go down hill. My investments started to go down hill and I had also racked up a lot of credit card debt at that time because I had moved to another city to pursue graduate school again.
Before I knew it my investment had lost 25%. I didn’t know what to do. I was, in debt, not making a lot of money, the stock market was down. OMG, what would I do. I did an exceedingly stupid thing. I sold the stock and took the money out of the IRA so I could pay down some of my debt. Now the bank warned me that I would be hit with a 10% penalty at tax time, but I told them I would have the money back in the account in two months.
Yeah, that didn’t happen and I ended up owing the IRS at the end of the tax year because of my stupidity.
Important Lessons I Learned
1) You can’t listen to the news media all the time when it comes to investing. There have been a couple of times, primarily 2008, when I wanted to just get out of investing and put the money under my mattress. I never did give into that compulsion. In fact, I invested more.
2) My level of patience needed to improve. I fully admit I am impatient person. I want my debt gone. I want to have a family. I want everything now. I am a man in a hurry, but to paraphrase an Alabama song I’m in a hurry and don’t know why. I realized I needed to slow down. The tortoise wins the race, not the rabbit. Slow and steady has become my mantra, although I still want to get in on IPOs and own the next Google or Apple or Facebook.
3) If you have debt use some of that extra money and pay it down. When I invested this money in an IRA I was steadily paying on my student loans. Instead of taking that money and achieving an instant return by paying off debt I had dollar signs in my eyes and went the other way. Paying off debt is a SURE way to obtain a return on your money.
4) Single stock investing is not a good option for me. The reason I never invested in some of those IPOs like Google and Facebook is because of this prior experience. I thought I would lose money. Now I have become much more educated since then and I think I could do fine picking good solid companies that aren’t fancy, but get the job done (Google, IBM, General-Mills, Pharmaceutical companies, consumer staples, etc), but I much prefer mutual funds, particularly index funds. When I am buying mutual funds I have to sometimes remind myself that I am buying some of these stocks, but I am also buying the entire market, which gives me diversity in my investing instead of putting all of my eggs in one basket.
5) Never make an financial decision on impulse. I have a mental rule for myself. If I choose to invest money (not necessarily a 401k) in my Roth IRA I must wait at least two days before pulling the trigger. For the past few years I have been able to follow that rule. In my 20s, I made much more impulsive decisions with money and debt and it has created a lot of stupid mistakes. Mistakes that I am still paying for. Any financial decision I make and really any large purchase I need to mull it over for 48 hours before I pull the trigger.
6) Educating yourself with regards to money is key. The truth is investing, saving, and paying off debt, isn’t rocket science. Most of it is behavioral. Most of it can come through reading and researching. Researching is one of the skills that I am pretty good at. Maybe it is why I started this blog and I read so many other personal financial blogs, as well as other websites. A person once told me that they only trust expert opinions. Well I am no expert (not yet) on finance. However, I don’t think you need to be an expert to save, invest, and pay off debt. It requires you to sit down read, learn, read some more, read some more, consult, think, and read some more. I know that doesn’t always work for people who want instant gratification (I am one of them). But I think it is absolutely imperative to be the master of one’s own fate. You don’t need to have certifications and a Ph.D. to learn to save and invest. You just need to sit down, commit the time, and do the work. You will make mistakes, but that is part of learning. I still make mistakes, but each one is an important lesson and I continue to educate myself every day.