I had a reader ask me where I learned about business and investing. Well my background is in computers so most of what I write about is from lots of reading and plenty of doing -- which making mistakes is part of the doing. So here's my top list sorted by present day value (using my exact investment returns from that point on):
1. Was in a relationship where dollars flowed out of my wallet like a waterfall. This period last a few years and I overspent my budget during that time by about $85K. It was an expensive lesson to understand that two people need to be on the same page for goals, lifestyles, finances. Now I won't say it was a complete waste since I did enjoy the food, wine and nights out on town -- hence, I would pro-rate that number by half to an effective loss of $40K.
Present day value = $55K.2. Leased a convertible M3 (
E46 model w/ SMG transmission).
I thought I had reached some level of success and decided this was the
right car for my station in life. I was prepared for high monthly
payments ($1100/mo) but was shocked by my new insurance premiums
($500/mo). Apparently, a new M3 is a magnet for young Asians (using
their parents money) with the propensity to smash up the car -- my agent told me it costs less to
insure a Porsche 911 Turbo (2.5X more expensive). As an added insult, I
got 8MPG driving up and down the hills of San Francisco. After a year
of this, I got out by using the car as part of a compensation
package to entice a targeted employee to sign up with us. Compared to
my replacement car (
convertible MINI Cooper), the M3 was $14K more expense per year to drive.
Present day value = $18K.
3. Did not participate in employer retirement plans while I was working
my way through school. Now you might think that's an
impossibility since every dime needs to go to today's outrageous college costs.
Back then though, I spent 3 years in community college at $250/semester
and then 3 years at the 2nd tier state school (XYZ State versus UC XYZ)
at $1000/semester. Since I was taking my time with classes (6 years instead of 4), I had enough time to work. Hence, I had more than enough discretionary income
to contribute at least 10% of my income which would added up to about $6000.
Present day value = $16K.
4. Opened up a $25K FOREX account and gave an "advisor" trading rights to earn money for me. Within 6 months, I got $7K back ... of my original principal. After this episode, I ramped up my reading about investing, moved my accounts to Vanguard (where possible) and used the FOREX losses to offset capital gains incurred by the move. Tax-adjusted, the loss ended up being $10K. (
IRS regulations to deduct FOREX losses are unclear so I deducted against income on line 21 -- shrug, I haven't been audited yet.)
Present day value = $10K. (Yes, this boneheaded move was only a few years back.)
5. Tried various stock picking systems. I would read about "systems" in financial media porn, get all excited about the prospects of 25% returns and give them a try. Well my annualized return for a decade plus of stock pick was 4.5%. During that same period, Vanguard Total Stock Market returned 8.3% which would have given me an extra $4000 in returns.
Present day value = $4K. (Response to #4 gave me a kick in the ass to stop picking stocks -- again, recent history.)
6. Used actively managed mutual funds. I will say this is not
that much of a mistake. After all, even though financial media convince me to choose a more expensive way to invest, I still did invest a nice chunk of my salary. After reading up about indexing versus active management, I put all my numbers into a spreadsheet and found my wonderful fund picks underperformed their respective index benchmarks by about 1% per year. Adding 1% to my taxable fund returns would be an extra $3000.
Present day value = $3K. (See #4 and #5.)
Add it up and that's an additional $106K* if I had not made these mistakes. However, that's an impossibility as all humans make mistakes (or uninformed decisions). The key is learning from them and avoid getting emotionally invested so we can make the necessary course corrections.
* To put this amount into perspective though, 2 years in China will cancel out 2 decades of missteps with the difference in cost of living and taxes. 2 conclusions: (1) big ticket items matter much more than the small ones and (2) consumerist spending is a bigger impact than investment choices.
(Filed in investing, philosophy, spending)
Past financial doozies
Posted by Mossy
November 28, 2010 8:06 AM
1. Was in a relationship where dollars flowed out of my wallet like a waterfall. This period last a few years and I overspent my budget during that time by about $85K. It was an expensive lesson to understand that two people need to be on the same page for goals, lifestyles, finances. Now I won't say it was a complete waste since I did enjoy the food, wine and nights out on town -- hence, I would pro-rate that number by half to an effective loss of $40K. Present day value = $55K.
2. Leased a convertible M3 (E46 model w/ SMG transmission). I thought I had reached some level of success and decided this was the right car for my station in life. I was prepared for high monthly payments ($1100/mo) but was shocked by my new insurance premiums ($500/mo). Apparently, a new M3 is a magnet for young Asians (using their parents money) with the propensity to smash up the car -- my agent told me it costs less to insure a Porsche 911 Turbo (2.5X more expensive). As an added insult, I got 8MPG driving up and down the hills of San Francisco. After a year of this, I got out by using the car as part of a compensation package to entice a targeted employee to sign up with us. Compared to my replacement car (convertible MINI Cooper), the M3 was $14K more expense per year to drive. Present day value = $18K.
3. Did not participate in employer retirement plans while I was working my way through school. Now you might think that's an impossibility since every dime needs to go to today's outrageous college costs. Back then though, I spent 3 years in community college at $250/semester and then 3 years at the 2nd tier state school (XYZ State versus UC XYZ) at $1000/semester. Since I was taking my time with classes (6 years instead of 4), I had enough time to work. Hence, I had more than enough discretionary income to contribute at least 10% of my income which would added up to about $6000. Present day value = $16K.
4. Opened up a $25K FOREX account and gave an "advisor" trading rights to earn money for me. Within 6 months, I got $7K back ... of my original principal. After this episode, I ramped up my reading about investing, moved my accounts to Vanguard (where possible) and used the FOREX losses to offset capital gains incurred by the move. Tax-adjusted, the loss ended up being $10K. (IRS regulations to deduct FOREX losses are unclear so I deducted against income on line 21 -- shrug, I haven't been audited yet.) Present day value = $10K. (Yes, this boneheaded move was only a few years back.)
5. Tried various stock picking systems. I would read about "systems" in financial media porn, get all excited about the prospects of 25% returns and give them a try. Well my annualized return for a decade plus of stock pick was 4.5%. During that same period, Vanguard Total Stock Market returned 8.3% which would have given me an extra $4000 in returns. Present day value = $4K. (Response to #4 gave me a kick in the ass to stop picking stocks -- again, recent history.)
6. Used actively managed mutual funds. I will say this is not that much of a mistake. After all, even though financial media convince me to choose a more expensive way to invest, I still did invest a nice chunk of my salary. After reading up about indexing versus active management, I put all my numbers into a spreadsheet and found my wonderful fund picks underperformed their respective index benchmarks by about 1% per year. Adding 1% to my taxable fund returns would be an extra $3000. Present day value = $3K. (See #4 and #5.)
Add it up and that's an additional $106K* if I had not made these mistakes. However, that's an impossibility as all humans make mistakes (or uninformed decisions). The key is learning from them and avoid getting emotionally invested so we can make the necessary course corrections.
* To put this amount into perspective though, 2 years in China will cancel out 2 decades of missteps with the difference in cost of living and taxes. 2 conclusions: (1) big ticket items matter much more than the small ones and (2) consumerist spending is a bigger impact than investment choices.
(Filed in investing, philosophy, spending)
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