Reading ESI Money you might think I’m a financial genius who has always had everything money-related figured out. That’s far from true.
I do write mostly about the positive sides of what I’ve done because 1) much of it has been positive and 2) I think people want to try and emulate what has worked well.
That said, there are obviously learnings to be learned from failures, not to mention the fact that I need to eat some humble pie now and then.
So today I’m sharing with you the list of my worst money mistakes:
Waiting to save.
Once I got out of grad school I did what many new MBA students do — I went on a shopping spree. I bought a new car, new clothes, and lived the high life with my friends. I had no budget and absolutely no savings. I was making a fortune after all (or at least it was a fortune to me) — why did I need to save?
If this was just a blip on the radar it would have been fine, but it lasted for several years. Even after I was married I didn’t begin saving in earnest for a couple years. So all in all I probably lost five good investing years including my issues with the next mistake. That may not sound like much, but given that time is the best way to maximize your investment return and that I lost five years of compounding, this delay probably cost me somewhere close to $1 million (certainly hundreds of thousands — you know my net worth聽— imagine what it would be with five more years to grow!).) Ugh. I’m getting sick just thinking of it.
Trying to invest in individual stocks.
Once I did begin investing, I knew that I was a much better stock picker than everyone else. Why I thought this exactly remains a mystery, it must have been because I had superior intelligence compared to the rest of the world. Oh, and I had more insight than trained money managers with millions of dollars and tons of staff at their disposal.
Spurred on by books like Beating the Street
, I just knew I could pick stocks better than most.
I think you know where this is heading. It’s like watching a train wreck in slow motion.
I didn’t lose a fortune thank goodness, but I certainly under-performed in my stock choices. And once that didn’t work, my next move was to mutual funds with high fees. I’m dying!
I eventually found my way to Vanguard and their low cost index funds but I certainly hindered my returns for many years.
Not buying more real estate when it was cheap.
I’ve said previously that I was too tight on my financial projections when I bought my properties. If I had loosened up a bit and been willing to accept properties with a 9% return (versus my 10% goal), I鈥檇 probably have twice as many properties as I do now and they鈥檇 be earning at least 8% total at the worst. In addition, they would likely have appreciated big-time. I’d be earning well over $100k a year and would have retired at least a few years earlier.
Putting money in an uninsured bank.
When I was in high school we had two banks in town. One was insured by the federal government and the other had so many assets that everyone “knew” it could never go bankrupt.
I worked for $3.35 an hour and saved $3,000. I put it in the uninsured bank because that’s where my family kept their money.
Well, guess what happened? Yep, the state came in, closed down the bank, and everything was frozen. It looked like we were going to get nothing back.
But then the state started selling the bank’s assets and over the course of two years I got around 80% of my money back. In the end it appeared that the bank did have enough assets to cover deposits (there were expenses that were incurred when the state started selling everything) and didn’t really need to close. Thank you, State of Iowa, for killing a bank that was doing fine.
Anyway, I was thankful that I dodged a bullet (mostly) and decided not to invest again in an uninsured bank.
Getting involved in a multi-level marketing (MLM) business.
Anyone ever tried multi-level marketing? My wife and I did when we were first married. I’ll spare you the gory details but it was what you’d expect: too much time, too little money, and five years worth of laundry detergent in our basement. We lost maybe a couple thousand dollars so it wasn’t a killer, but it was brutal going through it.
Recently a new friend of my wife’s tried to get us to join her MLM business. Though it’s been 20 years since our last one, I almost broke out in a rash at the thought of it!
There have probably been more stupid moves I’ve made but these certainly have to be the highlights. It’s amazing that even with all these stumbles things turned out well for us.
How about you? What money mistakes have you made?
Hard to know where to start so I will go with my worst. Most of my individual stocks I have owned were blue chip or dividend paying that had growth so most made some money but the biggest failure was in the Dot.com era with Global Crossing which was a hot dot.com stock. There was a joke associated to this stock and it went something like this. If you bought $1000 worth of Global Crossing at its high and $1000 worth of beer with the Michigan 10 cent bottle return, drank all the beer and returned all the bottles for its 10 cents deposit, you would have more money left over than what you were given in the settlement in the Global Crossing bankruptcy and be happier because you were so drunk you wouldn鈥檛 care. Yep my $1200 investment Global Crossing in a DRIP account, I received a settlement somewhere around $20 in the bankruptcy.
I have made quite a few mistakes in investing and purchases but nothing that has set me back in a huge way. Mostly minor and recoverable but I did learn. Probably because I did not have a large expendable income so I needed to be more cautious but even then you will have a Global Crossing someday.
My two biggies are:
Waiting to save:
Like you, I did not save immediately nor as much as I could have. I/we lived within our means but we could have saved so much more.
Not investing aggressively enough: When I started working after college (1980) interest rates were very high (double digits) and my family had not been into investments beyond CDs. It took a while for me to learn about investing and feel comfortable riding out market dips/drops. After many years I learned to buy during those times.
Yes, I have had both positive and negative experiences. My worst mistake was made when my husband died. I had planned to pay of my house with the insurance money but let the insurance broker talk me into investing it. Not a bad idea on the surface. However, I was only earning 7% and my house interest was 9%. When a few years later I did actually pay off the loan, I had to use my IRA money since the life insurance money was depleted by 2007-2008 housing crash. Now I also had to pay thousands in taxes to pay off the loan because of the IRA withdrawal. I lost over $200,000 in that crash which was twice the amount I owed on the house!
Selling a rental that we bought in Denver in January 2009. Bought it for $130k and sold it for $160k in 2014 because I didn’t think the market would go higher. Now it’s worth $200k+. The lesson I learned was to buy and hold for the long term. And that I don’t know !#@% about predicting the economy. 馃檪
I’m unfortunately still investing in individual stocks. Yikes. I feel bad saying it, but I started at the end of 2014 and I’m up 12% this year and last year. It’s mostly with industry index funds and large cap companies.
I’m not saying I’m smarter than most. I built a monthly process at the beginning that I try to adhere to. And it seems to be working (so far).
* I only trade once a month.
* I do high level research (non technical) on each company.
* I watch each for a decent amount of time (6-9mo) before cost averaging in.
* I read a financial quotes I’ve compile from Warren Buffett and others before making any decisions.
* I don’t follow the crowd. I don’t simply buy on some news, rumor or internet article. (I did one time but sold the next day because I knew I had broken one of my rules)
* I try to stay diversified.
* I try to keep trading costs low.
* I track my performance against the S&P500.
* I only buy companies I want to own in 5-10 years.
So, I try to be wise about it. … but at the back of my mind, I know it’s probably foolish.
Add another one for waiting to save. I work with a lot of adults who are 10+ years younger than me, and if they start talking about personal finance I remind them to start now.
Ahh, we all make mistakes. You learned more quickly from yours than many people do! (The bank thing surprises me…that really happened!? – ugh.)
We were a little later learning from our mistakes – our biggest mistake has been debt (thankfully it wasn’t credit card) and not investing more earlier. So, now we are trying to catch up. Better late than never, as they say.
I’m surprised by the MLM. I appreciate this post, it makes you relatable =D
Mine would be not saving enough/spending too much after finishing grad school. I had a high paying job as a pharmacist when I graduated in 2007, so of course I blew my first few paychecks on purses, dinners, shoes, etc. This lasted for about four years, and then I realized I had a wedding to budget for. Bringing another person into the picture, who had his own school loans and car note, made me snap back into reality!
Not sure marrying somebody with no personal and financial goal would classify as a mistake. Learned the hard way, but working on it. Other than that, not growing in career and not investing are some of my mistakes.
Falling victim to some minor league scammers with selling a car and also a resume service to find a job. That cost me a few thousand dollars.
Then I lost several tens of thousands of dollars by owning an ETF that was a leveraged play and short financials. Having made some quick money off it in 2010 I held it for a period of time and reversed my gains and started incurring steep losses. Instead of taking prompt action I waited. That costed me.
A few years ago I invested a hefty portion of my net worth in a start up. They are not doing great but not doing bad either so I’ll have to wait to see if this gets added to the worst investing mistakes list.
I’ve also created an individual stock portfolio that is industry diversified and is mostly in blue chip stocks- there are about 30 companies in the portfolio. It’s like an ETF but more targeted and I’m focusing on growing cash flow from it. That alone should be able to fund my retirement. I’m also continuing to work to build a larger margin of safety. I’ll diversify more into bonds if interest rates continue to be high like this.
Likely there are some more money mistakes ahead of me but I guess this is part of life. I’m trying to limit risk as best I can.
-Mike
Yes, everyone does mistakes. It is important to learn from mistakes and do not repeat it. I think individual stock picking can be done provided we do complete study and keep an eye watching the company performance.
Thank you for sharing, I’ve made so many of the same mistakes, with the worst being waiting to save. Definitely making the effort to turn that around and glad to know that even though we’ll never get to where we could have been if we’d started earlier, it is not to late to work toward a comfortable retirement.
Worst mistake I made at 40 – getting into debt for a failed business and having to start all over again so late. Any advice anyone? It’s hard to think I’m in so much debt at 44 years old with kids and a mortgage and car loan too. FI seems far away.
Depending on the amount of debt, maybe bankruptcy is an option? Hate to go there, and I’m not at all knowledgeable about it. Just trying to think of a way you an start over.
The car loan part might be fixable, depending on where you are on the loan. Does it make sense to sell it and buy a used one for cash?
You didn’t say anything about your income situation. Would a job change help? Can additional streams of income be added?
Bottom line: You can’t live differently in the past. I see from the timestamp on your comment that this was over a year ago, so maybe things are better now. I hope so. But don’t let the mistakes of the past keep you from living your life and finding opportunities now. Financial independence is a wonderful goal, but it’s not the only thing in life. There are higher, more enduring things to live for.
Two words: penny stocks. And to make matters worse, I did it with $15+k when I was in my early 20s. If I had just socked that into an S&P500 index fund and left it there, it would be worth nearly $300k today, maybe $600k by my retirement age. That was an expensive mistake.
I second mistake was more recent. In 2015, we moved from our home and chose to rent it out. That turned out to be expensive, with repairs and maintenance basically eating the rental income. But in 2018, after a bit of appreciation, I could have sold and pulled out the equity with no capital gains tax. I was in a buy-and-hold frame of mind and didn’t do any kind of calculation of what the alternatives might have been. I missed that window. Now when we sell, it’s likely that the capital gains (together with additional taxes from Canada, where we now reside) will wipe out all of that and more. The kicker: we had about $155k in equity in the house (now considerably more). But if we had sold in 2018 and socked it away, we’d be looking at passive returns of about $10k/year.
That brings up a third mistake: prior to moving from the US to Canada, I really should have consulted a tax attorney, a financial advisor, or both. I’m reluctant to spend money on such things, but we’ve now accumulated enough that it’s going to cost us. Hindsight is 20-20, and it’s possible we might not have gotten good advise (I know that happens too). But from where I sit now, I definitely regret not getting more expert help.
But where can you get reliable help. I know a fee based fiduciary is best but cost of $1000 is steep for me and no reviews hardly to go by!