What financial lessons would you “do-over”?
“We don’t make mistakes; we create life experiences.” – Unknown
I’m a big believer in the concept that everything happens for a reason. Sometimes that reason becomes clear later in life, sometimes it doesn’t but, for me, trusting that even the worst experiences are part of a bigger plan makes the tough times easier to handle and the good times all the more enjoyable. I’m not sure if it’s the changing of the season or the fact that my 40th birthday is slowly creeping up on me but I’ve been thinking a lot lately about the experiences I’ve had and the financial lessons I’ve learned along the way. I wouldn’t say that I have any serious regrets but there are definitely some key financial habits I wish I’d adopted earlier and some holes that I would like to have side-stepped rather than fallen into. I saw a quote once that read, “Have you ever stopped to consider that perhaps your sole purpose in life is to serve as a warning to others?” I think that “sole purpose” might be pushing it a little far, but if I had the ability to stage an Ebenezer Scrooge style intervention as the “Ghost of Sarah yet-to-come”, these are the things I might encourage my 16-year-old self to “do-over” a little differently:
1. Save more. Spend less.
So many of the challenges I faced in my 20s and 30s could have been avoided altogether if I’d had more savings and less debt. Understanding (and consistently applying) core financial concepts such as the “rule of 72” and “pay yourself first” along with a strong money management system would have made many of life’s curveballs less devastating and sped up my recovery time. Choosing to pay attention to my Dad’s assertion that “it’s only a bargain if you wanted it before you went into the store” might also have helped keep more of my hard-earned money in my pocket! Good money management isn’t rocket science, it’s rocket science!
2. Use credit wisely
Credit can be a blessing and a curse. Used wisely it can help you finance a home, fund business opportunities and earn you a myriad of “rewards” through loyalty programs and incentives. Used with careless abandon and a chronic lack of understanding, it can sink your prospects of a sound financial future faster than quicksand. The debt-hole is easily dug, seriously difficult to get out of and its effects can last a long time. Had I known at 16 what I know now, my choices (and their consequences) would have been dramatically different. Teaching kids about credit, and how to manage it effectively, is fundamental to their financial success, especially in the society we live in today which encourages us to live beyond our means and makes it far too easy for us to do so.
3. If it looks like a lemon. It’s a lemon.
Trust your instincts and trust the experts. Whether it’s a car, a house, an investment or a business deal, if it sounds too good to be true, it probably is. If your gut tells you it’s a bad movie, it probably is. Surround yourself with experts you trust and be willing to listen to (and accept) their advice. I learned a number of life and financial lessons as a homeowner and as an entrepreneur and, while I am grateful for the experiences, with hindsight I can see that trusting my instincts and the acting on the advice of experts would have saved me a lot of stress and a lot of money.
There are adages aplenty to help us feel a little better about the mistakes we make but the reality is, that when it comes to finances; far too many of those common mistakes can be avoided. Ignorance is not bliss and what doesn’t kill you can weaken you to a point you may never recover from. I may sound a little over-dramatic but I talk to people every week who are paying the price for mistakes and misjudgments they made years ago; for choices, they might not have made if they’d been armed with more information. Too many young people are learning about the perils of credit when they’re already up to their neck in debt and our schools and universities aren’t teaching them what they need to know. I don’t have the ability to stage an intervention with my 16-year-old self (more’s the pity!) but I do have the opportunity to share information with my niece and nephew as well as with my clients and friends. What financial lessons have you learned in your financial journey and who can you benefit by sharing those lessons? I’d love to hear from you.
When I was younger, and first starting to invest, I assumed that Bank were there to be of service to their customers. What I later discovered was that the bank’s only obligation is to their shareholders. This became evident after years of dismal returns from high MER mutual funds (2.5% MER), pathetic, taxed returns on GICs, and being convinced by ‘helpful’ bank employees that I was great customer and would easily qualify for a higher mortgage amount, a high HELOC, or an increased credit card limit. They then convinced me to use their “wealth advisors” (only for our preferred customers and only for 2.5% of assets under management, or our personalized in bank stock brokers (only for preferred clients, and with a personalized set of stock picks from our Toronto analysts – in companies I’d never heard of). After 20 years of the merry go round, I jumped ship, read some books, and set up low fee ETF index funds. The ‘actual’ returns have never been better. It makes me realize how the big banks continue to rake in billions of dollars in profit on the backs of the average Canadian ‘investor’ by milking them from cradle to grave.
Since the banks are so generally lucrative, and I agree, PLEASE tell me you bought the shares directly.
ETF’s are better than 2.5% mer mutual funds for sure, but the best way is to buy the shares directly and have no on going fees.
I first used a website called the Canadian Couch Potato, and after doing the math backwards and forwards, it’s really tough for a guy like me to pick individual stocks or bonds that beat the returns on a diversified, balanced, liquid portfolio over the long haul. My average ETF MERs average around point 30 percent (.30), and I have been getting an after inflation return of about 6 to 7%. I had some individual stocks for awhile, but discovered that for me, it just wasn’t the right fit. I usually have to only rebalance my portfolio once per year, and only to sell what’s gone up and buy whats gone down to bring me back into the proper ratios for balance between Canadian index funds, US index funds, and International Index funds. Throw in a few Preferred shares, some REITs and that’s it for the year. Guys way smarter than me, with degrees and high end computers and logarithms can’t consistently beat the market in the long run, It’s mathematically impossible, because they ARE the market; in order for some to pick individual stocks and beat the market, others stock pickers have to have a loss and weigh the market down with losses so that there is a market return to beat. So why not just be average and get the return of the market every year. By diversifying, I also spread my risk around in various locations and sectors that tend to move in opposite direction to each other. And if bank stocks are what a person is looking for, they can certainly buy a dividend or bank focused etf. I’ll gladly pay the point 20 percent, rather than trying to consistently pick ‘the winners’. With so many balls in play, interest rates, inflation, quantitative easing, and market volatility, it’s best in my humble opinion to stay liquid and diversified. Do I know where the markets or stock prices are headed? Nope, I just work here, but I do know that it’s impossible to win against math, and that’s what diversification allows; over the long haul, math works in your favor.
Steve, thank you so much for your comment! You’re not the first person to have shared that story with me and it’s unfortunate that you’re definitely not alone in your experience. I try hard not to be too cynical but we live in a society where we’re fed an awful lot of “information” that’s actually smart marketing in disguise. Now, more than ever, consumers need to take the time to do a little research rather than accepting expert advice at face value. It’s far too easy for retailers and financial institutions to profit from our lack of understanding and our unwillingness to ask questions…
I agree with Steve and applaud his approach. I do own some individual stocks as well as EFTs, but for most people the ETFs are the best option. We had 20 years of dubious experience with some of the packaged products, mutual funds, wrap accounts all promising more then they delivered. Individual education is your best investment. Then carry on as Steve and the Canadian Couch Potato do and you’ll be better off than the majority. Fees are the leach on your account over time. It just shows up so much more in times of low market returns.