My First Few Investment Mistakes

My conspiracy theory is that the financial services industry purposely makes investing complex and complicated in an attempt to confuse us. Then we come to them for help with understanding how to invest and then they charge us a bunch of fees and service charges for their time. Just as a heads-up, this is going to be a lot to digest, but I also feel that this story is super important. I could just give my opinion on investing in the stock market, but I can almost guarantee you that it will be so basic and boring that you’re going to be looking for more. This is why I think it’s super important to give you the story behind why I have the opinions that I have. I’ve lost a decent amount of time and money while learning how to invest, luckily I was in my early 20’s when this happened. These stories are important because if you’re 30+ years old then you don’t have the luxury of time to make these same mistakes.

When I was working part-time at a credit union while in school my starting pay was $10 an hour. This was more than I could have ever imagined making at the time, especially considering that minimum wage started at $6.75 an hour. What was even better was that the credit union offered part-time employees full benefits. I was on my parent’s benefit plan, so the credit union paid me 50% of what they would have contributed towards my medical benefits had I been receiving them from the credit union. This resulted in me receiving an extra $100 on my bi-weekly checks, regardless of how many hours I worked. At 20 hours a week this instantly increased my hourly rate from $10 an hour to $12.50 an hour!

After crashing my Killa Cam, I decided I didn’t want to feel the pain of my money going down the drain again, so I started saving. I’d look at my savings account at the beginning of the new month and wasn’t happy about only earning .01 cents in interest. I researched the credit union’s products and decided to invest. My first investment ended-up being a Certificate of Deposit (CD). I placed about $2,000 in a six-month CD that paid a whopping .15% and earned about $1.50 when the CD matured. At the time, I didn’t know what a good rate was, but I knew that $1.50 wasn’t worth not being able to spend my $2,000. I’d be better off balling out with my $2,000 and searching sofa cushions for change to find that $1.50.

I knew that everyone made money with stocks, but didn’t know how to get involved. I finally found a company called Sharebuilder. At the time Sharebuilder was marketing to college students and when you opened an account they’d give you a free book called “The Automatic Millionaire” by David Bach. The concept of the site was that even if you only had $25 a week to invest that you could get involved with purchasing partial stocks. I started my account and had them withdraw $25 a week from my checking account so that I could purchase EA Sports stock, I figured everyone loved video games. Long story short, I didn’t realize that the fee for purchasing the stock was something like $7 per transaction! This meant that for every $25 that left my bank account, only $18 went towards my stock purchase. Even worse was that if/when I was ready to cash out my earnings then I would have to pay another $7.

Throughout this blog I mention making 8–10% on my retirement accounts, I feel like this is an achievable rate of return. With the Sharebuilder fees I was losing 28% of my money just for investing! At this rate, I was never going to earn anything. Luckily this only went on for a few weeks before I realized how much I was being charged. To this day I still have the account open because I was so mad that I refused to pay the $7 to sell the EA Sports stock. The account probably only has a few dollars in it by now.

So, I realized that a penny a month wasn’t good enough, 0.15% wasn’t good enough and -28% for sure wasn’t good enough. I decide to speak with a financial representative at a different credit union and learned about additional options. The financial representative recommended mutual funds. This was a collection of stocks that a professional manages in an attempt to earn a decent interest rate. He said that I wouldn’t be charged the $7.00 per transaction and that he couldn’t promise me growth, but the fund my money was going in would grow at about 15% per year. That meant that over the course of a year I’d earn $23 instead of the $3 that I was on track to earn with the CD. By now, I had read “The Automatic Millionaire” and understood the magic of compound interest. On top of that, he said it would be in a Roth IRA so at retirement I could take my money out without being taxed.

A few years later I was reading about “Loads” and “Fees” that were associated with mutual funds. Long story short, they said to watch the fees on your account because it could cost you hundreds of thousands of dollars over time. I looked at my account and sure enough, it wasn’t as bad as the 28% that my Sharebuilder account was charging, but I was definitely paying more in fees than I should have. I decided to move my funds over to an index fund through Vangaurd. In the next few weeks I’ll post on why I prefer index funds or actively managed mutual funds.

There you have it, if I were to sum all of this up then it would be to skip over over savings accounts, certificates of deposit (CDs), individual stocks, and mutual funds and go straight to index funds when saving for retirement. Set up an account, have schedule a monthly withdrawal and check to see how it’s doing every 6–12 months.

BobbyBiz

Personal finance made easy

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Bobby L. Lister III

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God Fearing🙏🏾Financial Freedom Fighting🇺🇸Abundance Mentality Believing💰Husband to @mrs_lister👑Father of #BobbyIV👶🏽 Sac,CA🌲#adventuresofthelisteriiis 🌅

BobbyBiz

BobbyBiz

Personal finance made easy

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