I wish I could say that how I got started investing was all rainbows and unicorns. And that the road was paved with gold and lined with roses.
But the reality is that I made lots of stupid money mistakes along the way.
Which makes me normal, I guess.
And it’s kind of my way of saying that wherever you are right now on your financial journey, you still have time to do things differently. It is possible to understand financial jargon, get comfortable with investing, make different choices and change your financial future.
WE DIDN’T LEARN ABOUT MONEY GROWING UP
Most of us learned very little about money management growing up. Our parents didn’t teach us how to stay out of debt, balance a checkbook, save for a rainy day and invest for the future. In fact, they probably didn’t talk much about money at all. Unless they fought about it (fortunately, mine didn’t).
And school wasn’t any better.
Although I learned a lot of things in school and in college that I never needed as an adult, (like the periodic table – which my husband the scientist does need), sound money management wasn’t part of the curriculum.
Wouldn’t it make sense for the school system to make financial skills a graduation requirement? Kids and young adults could learn about cash management and investing in bite-sized nuggets over the course of several years.
But since that’s not the system I grew up in, here’s my story.
HOW I GOT STARTED INVESTING
I guess you could say that I got started investing in 1985. That was the year I graduated from college and started working as a Financial Analyst at Goldman Sachs (oh, the irony!). It was also the year my employer opened a retirement plan for me, known as a 401(K) in the United States.
The truth is, that I paid no attention to my retirement plan. I must have signed some papers and I probably made an election as to how my money should be invested for my future. Or maybe I didn’t and I ended up with the default option.
I don’t remember. It was so long ago and that period of my life is all a blur anyway. I was working my tail off fifteen or more hours a day, six days a week, for one of the top investment banks on Wall Street. Life was hectic and high pressured. I can easily imagine that I set aside those boring financial/legal documents for later. Much, much later!
Anyway, it doesn’t really matter. I can’t turn the clock back and do it all over again.
When I finally wizened up and understood what was happening in my retirement account, I discovered that my money was parked for nearly 20 years in a low interest fund. It had barely grown at all.
Ouch! Today that makes me cringe. If only I’d known a thing or two about investing back then. I would have invested my retirement savings for long-term growth, in a diversified portfolio of stocks (mostly) and bonds.
Which is what I finally did 20 years later.
By mid-1991, I had moved from New York to London to Israel. I was married, working as a portfolio manager at the Bank of Israel, and the mother of a newborn daughter. My husband Jonathan and I were buying our first home. With money I’d saved from my years at Goldman (I’ve always been a good saver) plus some wedding money, we were able to cover about half the purchase price of the apartment. To increase our down payment and lower the mortgage, we explored a couple more sources of funds.
In his single days, Jonathan had taken out a life insurance policy (another dumb money mistake that I’ll write about sometime). We decided to cash that in. And I called Goldman to find out about my money. Believe it or not, that was the first time I learned that withdrawing retirement money before the age of 59 ½ gets you dinged with taxes and early withdrawal penalties. I can’t believe how totally clueless I was!
And on top of that, I still had no idea how my money was being invested. But that was going to have to wait for later. After hanging up the phone, I stuck my head firmly back in the sand and neglected my retirement account for several more years.
To be fair, I was a young mother, working full time and buying a new home in a country where we had no family. And we were doing all this financial stuff – for the first time – in Hebrew, which is not our mother tongue. So yes, while we made some dumb mistakes along the way, we also have to remember to celebrate our wins!
Jonathan and I were now the proud parents of three little girls, visiting my family in Los Angeles. Yes, life had been busy over the last four years settling into a new home and welcoming two new babies into our family. And I was still working full time. One day during our visit, my dad handed me a check for $5000 – this was my inheritance from my late grandmother’s estate.
This unexpected windfall brought us joy, gratitude and possibility. I wanted to put the money away for our daughters’ future!
The only problem was that I had no idea how to get started investing.
How ironic is that?! I felt comfortable co-managing a multi-billion-dollar bond portfolio for Israel’s central bank but stocks, bonds and mutual funds for our girls? I had no idea what to do and how to get started. And since that was the pre-Google era, I couldn’t just search How do I get started investing?
So due to a combination of lack of knowledge and lack of time (I was on vacation after all, with 3 little girls), I ended up depositing $5000 in a CD (certificate of deposit) at the local bank in LA.
Today I roll my eyes, shake my head and laugh at what I did. But at the time I didn’t think much of it. The money was earning interest and growing. And I was really proud of our responsible decision. But I know better now – money that you won’t need for a long, long time should be invested for growth with stocks and bonds.
By 1997 I’d picked up a little bit of investing knowledge. I hadn’t started reading any books – that would come later – so I must have been talking with colleagues at the office. When we went to our local Israeli bank to open investment plans for our children I chose diversified portfolios that invested in stocks, bonds, and other assets with the goal of long term growth (side note: the 15-year tax-advantaged investment plans that we opened were discontinued in 2007 as a result of capital market reforms).
What’s amusing, though, is how I chose the investment track for each of our children. There were ten or maybe twenty different investment tracks from which to choose. Immediately, I crossed off anything low risk. I wanted growth! Next, I made a short list of the investment tracks that were diversified and which had a decent track record. Finally, I matched up my kids’ names with the different investment alternatives. So, for example, the Rakia fund went to my daughter Rachel Lina (both start with R’s). The Otzmah fund went to my daughter Elianna (in Hebrew, both start with vowels). And so on and so forth.
I know it sounds a little crazy. My methodology wasn’t sophisticated or enlightened. But you know what? We did it. We put one foot in front of the other and started investing small sums of money in each of our children’s accounts every single month.
And what I discovered is twofold: first, by taking a leap and actually doing something I became more interested and curious to learn about investing; and, second, imperfect action is better than inaction.
During the next few years my husband and I took a class on personal finance and met with various investment advisors. I remember sheepishly telling one of them that we had some money in the bank – an inheritance from my second grandmother’s passing – but we didn’t know what to do with it.
As I replay those conversations in my mind, my body tenses up. I remember feeling dizzy and overwhelmed walking out of one particular office. Nobody explained very much to us. One financial advisor handed me fact sheets for a bunch of different investment options and said we should review them and choose (but how??). Another one gave us a bunch of papers and asked us sign on the dotted lines. There was lots of paperwork, choices to be made and money to move from here to there.
Ultimately, we chose our investment advisors and a handful of mutual funds. It was such a relief to put that chapter behind us and get back to every-day life. Someone else was taking care of our money.
In October 2002, my husband was diagnosed with Cancer. A few months later, his mother passed away suddenly and my dad had a cancerous kidney removed.
These upheavals threw a lot of extra challenges at our family. And one of the things we realized was that, even though we were investing and trying to take care of our financial future, we didn’t really have our financial house in order. We simply had to face the facts and think about the care of our (then) six children, the youngest only one year old.
For the first time ever, I took charge of our finances. I looked deeply at what was going on and made some disturbing discoveries.
For example, I realized that my retirement plan from Goldman Sachs had been all but stagnant for years. My money had hardly grown.
Then, I investigated the more recent investments we had made through our new advisors. It turned out that high fees coupled with commissions for lots of buying and selling in the accounts (i.e. churning) were eating into our nest egg.
Thinking I’d finally get smart about investing, I took matters into my own hands and followed a “hot tip”. I ended up losing two-thirds of the investment and paying the investment manager a handsome fee for that privilege.
I had to admit that our personal finances were a mess.
And I was deflated.
How could it be that I could manage the money of nations and multinational corporations with conscientiousness and professionalism, while effectively flushing our future financial security down the toilet?
I had often heard people complain that they “just don’t have the head” for numbers. They can’t deal with the number-crunching and detail-oriented aspects of money management.
But I definitely didn’t have that excuse for myself.
NO MORE STICKING MY HEAD IN THE SAND
Then and there I made up my mind that I was no longer willing to keep my head stuck in the sand. We had just beaten cancer. It was time to conquer money and plan properly for our future.
Blessed with Google and an internet connection, I started devouring information online. I discovered personal finance blogs and financial forums like Bogleheads. I read numerous books about personal finance and passive investing. It was an overwhelming learning curve. But in a good way.
I soon became committed to passive investing with index funds. The simplicity of replicating the performance of the whole market (the stock market and/or the bond market) with just three or four mutual funds made so much sense to me. It’s a proven, low cost, tax efficient investment strategy that outperforms 80% to 90% of investment managers over the long-term.
WE FIRED OUR INVESTMENT MANAGERS
It was time! After spending years feeling disconnected from our investments and intimidated by our investment managers, we wanted to take back control of our financial future.
We fired our investment managers!
Yes, it was a little scary at first. Especially during the financial market crisis of 2008. It was tough to sit on my hands and do nothing when the markets went into a tail spin. But I did it. I made it through the crisis without panicking and strengthened my money muscles in the process.
When I started on this journey, I never thought I would be the one to end up managing our money. In my mind, that was always something that somebody else does for you – as in that guy sitting behind that mahogany desk in that imposing office. But I’ve learned that investing isn’t rocket science. And I believe that most people can learn to manage their money and invest it on their own.
The most challenging part is discipline.
But if you believe that you have the ability to tune out the noise and stay the course, even when the financial markets get rough, then taking back control of your investments and managing money on your own might be the right decision for you.