My Million Dollar Mistake
I have been investing in the Stock Market since I was 18 years old. My dad and I used a program called Investools. Under his guidance and many weeks of practice trading, I started investing my money. I was doing great and loved every minute of it. As a college student I woke up before 6:30am just so I could watch my stocks go up and down. This is definitely not normal college behavior!
Some basic Stock Market info …
Over the long run, most stocks tend to go up but in the short run anything can happen. It is easy to make money when everything is going up but you have to cash out and realize your gain.
I was doing short term trading, meaning I was buying based on graph indicators not the long term outlook of the company. Like I said, I was killing it …. until my stocks started killing me. Every day I would get up and watch the slaughter and SWEAT! All my profits were gone and I was losing A LOT of my principle. One day I couldn’t take it anymore and I sold. I was down 50% and didn’t want to lose everything. That day I cemented a 50% loss. Ouch!
FYI, the mantra for trading is to buy low and sell high. As you can see, I did the opposite. I bought high and sold low. Unfortunately this happens to a large number of retail investors (that is you and me) because we didn’t enter the trade with a concrete exit price or plan and think the stock is going to go up forever (i.e. greed and wanting to get rich quick). When the stock drops or corrects, we panic, can’t stomach the drop and capture losses that are hard to recover. In my case, I needed to double my money just to get back to even! 100% return is very hard to do in a short period of time.
On top of it all, my stocks recovered after 3 months. Had I stayed in the stocks I would have been back to even and if I had stayed a total of 6 months from my sale date I would have recovered my profit plus some. Double ouch!!! Instead I had lost 50% of my money.
I repeated this glorious burn many other times. I am sure I had some wins otherwise I would have quit investing. The disasters are permanently etched in my memory. This isn’t even my million dollar mistake.
Fast forward to 22-25 years old. I worked for UBS Financial Services doing wealth management and they offered 401K matching of $5,000 per year. Every year I put in $5,000 and they put in $5,000. Awesome! At 25 I left UBS and went into teaching. I had $30,000, rolled it over and took that money with me.
Don’t worry, I continued to royally mess this up as well and we are almost to the million dollar mistake.
First, I want to make sure we are all clear on some basics. When investing there are 5 main categories of investment options: individual stocks (risky & concentrated), mutual funds (diversified yet high fees), bonds (low risk for low return), Crypto (bitcoin was born when I was 25 & not a major player) & ETF or index funds (diversified, low fees). FYI there are slight differences between ETFs & index funds but for the sake of this post I am going to use these 2 words interchangeably.
I didn’t know anything about ETFs until a few years ago and yet I had 3 years working in wealth management 😕. WTF. The money managers in my office were not using index funds for their clients because it didn’t make them money like mutual funds or mortgage backed securities (we all know how that turned out!). I was invested in stocks and mutual funds.
With that $30,000 I continued to have some wins and continued to make poor investment decisions. I was doing my best with the information, knowledge and education I had (or lack of education). I don’t know about you but they didn’t teach me wealth building and investing in school.
12 years later, at 37 years old that $30,000 stands at $24,000. Cool! That is still $24,000! Let me show what this number really means.
If I had known about index funds and invested $30,000 in an index fund following the S&P500 (which for the last 100 years has returned 10% per year Data 50yrs) this is what probably would have happened (based on historical returns):
Side Note: The rule of 72 says that 72/the interest rate = the # of years it will take your money to double. With a 10% rate of return, your money will double approximately every 7.2 years.
25yrs old: $30,000
32.5yrs old: $60,000
40yrs old: $120,000
47.5yrs old: $240,000
55yrs old: $480,000
62.5yrs old: $960,000
This is with no additional contributions and only $15,000 of this was mine. Instead this money looks like (now fully invested in SPY which tracks the S&P500!):
37yrs old: $24,000
44.5yrs old: $48,000
52yrs old: $96,000
59.5yrs old: $192,000
67yrs old: $384,000.
The reason I call this a million dollar mistake is because I know I had more money invested and contributed more money over the last 12 years. So the numbers in the 1st scenario are conservatively low. Experts estimate that people need $1 million dollars in the bank to sustain 25-30 years of retirement. Had I known to invest in ETFs at 25, my retirement would have secured itself.
Here come the old but true sayings 😁
There is no use crying over spilled milk [Bailey is still working on this one!].
When you know better, do better.
All of my money is 100% in ETFs following the S&P500. Zero individual stocks. In my personal finance class and my Instagram account, I am relentless about teaching my students the research, evidence and numbers that support passive investing through index funds over actively trading stocks. I also share with them my investing past and numbers. My hope is to give them as much information as possible so they can make the investing decision that is best for them [obviously ETFs!] and hopefully avoid my costly errors which when compounded absolutely suck.
Much love & respect!
Crystal Rigley Janis
AKA Ms. Rigley