One of my strong personal opinions about money is that you honestly can’t make money with your money without making mistakes along the way.
If you haven’t made any financial mistakes you really haven’t taken enough risk to really try to become wealthy and have financial freedom. Those that eventually start making a solid return have learned what do to by avoiding prior mistakes and losing their fear of risk investment.
Welcome To Your First Job – Here’s a Retirement Pamphlet
I was so scared to lose money that for the first 9 years out of college I invested the minimum in my retirement accounts.
I never once took the time to really learn about what I should do. I was handed a packet from an HR person and was told to look it over and that if the company did well we would get a 3% match and I should invest that amount because it was free money. Okay…not sure why I’m planning for retirement, I’m only 23, but whatever…sounds good.
For a decade I thought I was doing enough and was being safe in low-risk accounts and investing the minimum so I could have money in my bank account that I could touch and use. Looking back I am sure I cost myself over $100,000 in returns.
I’m actually sure it was much higher, but let’s stick with 100k because if I do the actual math I am going to be really depressed and it’s a Monday and I don’t want to start the week that way, especially with football season starting up.
Knowing How To React Financially when Times are Good & Bad
I read an article recently from Vanguard about how their investors react when the markets start to fall. Most people freak out and pull their money out or shift it around and basically, guarantee loses. Why do they do that? Lack of education.
In the Vanguard article, it said:
“Ignoring market turmoil can pay off in the long run because eventually, the stock market climbs back, Vanguard investors have learned.
Take the financial crisis of 2007–09, when the stock market lost half its value.
During that time, 87% of Vanguard participants didn’t touch their accounts. In fact, between September 2007 and December 2009, only 3% of participants in retirement plans gave up on stocks completely.
As a result, between the end of 2008 and the end of 2013, the average Vanguard 401(k) portfolio almost doubled in value from $56,030 to $101,650. Much of the increase can be attributed to the surge in stock prices.”
That is pretty amazing that 87% held the course….and they not only held the course but today their accounts are worth much, much more because the market roared back. Plus that is at the end of 2013 and those accounts should be even bigger.
Financial Education Will Make You Rich
Knowing how to react is so important. The markets will rise and fall as do most things that carry a level of risk. But how you react at that moment is likely to determine if you will be wealthy or just treading water.
A lack of education will make you think you need to pull your money out when the market tanks. After all, you have logged in to your accounts and they are down 40%. You are losing money fast. Well, the only way to guarantee those losses is to overreact and pull money out.
A little education and experience will help you avoid that mistake.
Why Did I Do That? If Only
What we need to do is try to think, “what would I say about this situation in 10 years?” Would we ever say:
“I’m sure glad I didn’t save more money a decade ago.”
“I’m glad I cashed out that 401k.”
“I’m glad I didn’t learn about all those fees and costs involved in my investments.”
“I really thought Blockbuster would turn it around; anyone wants 1,500 copies of Armageddon on VHS?”
Well of course we would never say it, but a lot of times we end up saying it.
“Why did I ever do that?”
“If only I had started sooner!”
We say those things because we have learned our lesson. So what can you do now to learn a little bit more so you have no regrets or fewer regrets in the future? Do you know what fees you are paying? Do you know anything about investing? Would you like to know more? What is holding you back?
The best way to learn is to actually live it, but doing some book learning ahead of time can make that life experiences a little smoother instead of taking on life’s lumps all at once. I also like to watch the mistakes that other people make. Better them than me at the end of the day.
Smart Risk & Dumb Risk
By educating yourself a little bit more you will find that risk isn’t bad…in fact, you will find it is going to make you wealthy. Or just continue the status quo with, don’t educate yourself and live a life of trepidation and fear of risk…. then look back in 10 years and say, “If only.”