I’ve Paid For This Twice Already…

The Accidental Investor

When I was in my first year of graduate school, I had a friend who was, in some ways, like my very own personal finance educator. He and I came from very different backgrounds and had very different levels of understanding about money and finance. Mine - minuscule. His - vast (to me at least). I was barely getting by on my graduate school stipend month to month, and he was living off his investments. I’d never been taught by anyone about investing money, and I thought it was something that rich people did. Sadly, my understanding of that extended to retirement as well. 401Ks I understood in theory, but didn’t only rich people have IRAs?

Well, my friend Sheldon taught me that you didn’t have to be rich to invest money. He had made a whole lot of money by having a knack for picking the right companies at the right time, but that isn’t what he taught me. He explained about the importance of investing, if for nothing else at least for retirement, and we had long talks about mutual funds and the value of investing for the long term. Instead of seeming out of reach and foreign, the idea actually seemed approachable and doable. We talked about risks and returns and buying for the long term and staying the course. Investing for my future went from seeming out of reach to feeling imperative. I had a little knowledge, and I felt like I could do something great. But a little knowledge might be a dangerous thing.

In my second year of graduate school I got a flyer in the mail from a local financial advisor targeting graduate students as new clients. In light of all my new awareness of investing for the future, I thought it was a good idea so I went to a free financial assessment. I ended up as a result funding an IRA to the maximum for that time ($2000) and starting a small portfolio of my own ($500). This was most of the savings I had accrued to this point so it was a big step for me.

Yes, there are about a dozen follies in what I did. I didn’t bring Sheldon with me to help. I probably should have. But the intent was good. My financial advisor kind of sucked. But that’s another story.

Almost a year after I did this, invested another $2000 in my IRA, had been steadily investing $50/month in my non-retirement portfolio, and was feeling all proud of myself for making so much money (my investments, retirement and otherwise, had grown by almost 25% independent of new money put in), the dot-com bubble burst, and everything I had pretty much sunk dramatically. I learned firsthand about risk and really, I didn’t like it one bit. The next year, I moved my non-retirement portfolio into my retirement one, and called myself done with investing. I was back to feeling like investing was for rich people, and besides, my life had changed, I was married and had other financial commitments than as a single graduate student.

My account has traveled through a few different firms, as my financial advisor moved up and firms were bought by other firms. Eventually my account was separated from a specific advisor due to its small size. But a funny thing happened. Even though I didn’t do anything else to it, it kept growing, little by little. And slowly as I became more educated about finance, I swung back towards believing in investing for everyone, not just the wealthy. I may have made a multitude of mistakes with my wee bit of knowledge, but I also was lucky enough to end up on the positive side in the long run, so far.

A few months ago, I closed my IRAs with the firm they ended up with, and moved them to Vanguard. Even with all the up and down craziness, my retirement portfolio was at that point worth about 50% more than the actual money I had invested in it 5-7 years ago. Not that this result is necessarily typical, but the upward trend is, in general, typical. I had almost accidentally become an investor, and it actually worked. I can’t go back in time and invest more money in my 20s, but at least I had invested some. Behold the power of compound interest.

I’m excited for what I might be able to accomplish in the future with a little more understanding and a lot more commitment to consistent investing for the long run. A little knowledge may be a dangerous thing but a philosophy of continually learning is a better weapon.

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