Could you please care to detail what mistakes you made and what improvements you made as you saved this incredible amount at such an young age?
Certainly. I took a couple of days to write down my experiences so I can relay them to you. The overall timeframe is 1999 until now in regards to info below. I hope you learn something useful from my experiences.
Mistakes:1) I entered the financial fray lacking a foundation of financial knowledge. I also didn’t know where to start to seek out information. I found out quickly that most people didn’t know either. During my initial search I ended up in the office of salesman. It cost me in several areas because I was easily duped by salesmen:
a) Buying actively-managed mutual funds with a high expense ratios and sales charges. I was sold and bought into Franklin Templeton and Fidelity investment vehicles. These two companies had high expense ratios but also super high sales charges. In addition, my salesman took 50% of my first year’s investment. So, my initial investment of $50 a month was cut to $25 a month, and then that was further eroded by the fund’s expense ratio and sales charge. When my salary increased I also increased my contributions but was slapped with losing 50% of my increase to the salesman for a year. I owned these investments for seven years, and I was literally giving my money away and smiling about it.
b) Buying whole life insurance policies. The salesman convinced me that buying a whole life policy will lock in low rates and also give me a nice chunk of change when after funding the policy for 50+ years I end the policy and get a whopping $70K in “investment returns.” These policies may have been suitable for other people but not for me. I had no dependents. But I didn’t really understand how that tied into insurance. I funded three whole life policies for seven years.
c) I was deceived by wily salesmen that my employer retirement plan was not good. My salesman sat me down and actually did a side-by-side comparison on his products versus my employer retirement account. He actually “proved” to me that his products were superior. I actually believed him without doing my own analysis. For seven years I did not contribute a dime to my employer retirement account.
2) I did not listen to my dad. My dad’s words to me were, “You’re a dumbass for doing this” (I’m quoting him exactly). I told my dad about my plans about a month after I made my first purchase into Franklin Templeton and Fidelity. My dad understood the life insurance game and saw I was getting ripped off by Franklin and Fidelity. To his credit he provided fatherly advice, but I was too proud to listen.
3) I got tied into a private lending agreement that led nowhere. My coworkers knew a developer who was trying to get initial investors into a project to build an office complex. The developer offered a “guaranteed return of 35% on investment.” The minimum investment required was $25,000. I had some extra cash available at the time and thought this was a good chance to cash in. I agreed to lend $50,000. This was summer 2008, and then the housing bubble burst. The office complex project ground to a halt. Technically, the project is still alive and struggling towards completion, but I don’t even count that money in my overall assets totals. If I had just put that money into VTSAX my overall totals would be well into seven digits by now. I did not believe my gut when the offer was “too good to be true.” LESSON LEARNED: trust gut instinct when a financial offering looks too good to be true.
Corrections/Improvements:1) I established financial knowledge base through reading good reference material. I started with
Bogleheads’ Guide to Investing and
The Millionaire Next Door. There are other books I read too. But a lot of books are crap. The good books I keep on my bookshelf as reference material. I’m about to add
A Random Walk Down Wall Street to my financial library.
2) I ended business with my salesman-masked-as-financial-advisor and ended business with Franklin Templeton and Fidelity and sold all my holdings. My tax-sheltered accounts I rolled over into Vanguard VTSAX. My liquidation caused a substantial capital gains tax the next tax season. But I gained an important boost to my psyche and confidence by completely disowning the organization I had done business with. It was a clean feeling and has served me well.
3) I dumped all of my whole life insurance policies by cashing out. By this time my policies had built a small cash value. Upon ending my policies I received three checks in the mail returning my cash value. It was not much amounting to about $7500. But my logic here was instead of buying whole life take that money and invest in an index mutual fund and come out on top after a decade or two. Compare that return to my whopping $70K cash value had I kept the whole life insurance policies. It’s easy to see which the bigger number is. If I need life insurance I plan to buy term to cover my dependents until they leave the nest.
4) I called my dad and told him that he was correct and that I should’ve taken his advice long ago.
5) I started contributing to my employer retirement account. With minor adjustments in personal spending I was able to maximize contributions in short order. And I just kept at it. I made certain that I contributed fullest to my tax-advantaged accounts first. Any adjustments in spending I would adjust the contribution level to my taxable accounts.
6) When I had money remaining after I had invested and had my fun for the month that extra money was invested in my taxable accounts.
7) I am still interested in making real estate a part of my portfolio, but instead of jumping straight into things I joined a group that does nothing but talk real estate investing. I’m learning from talking with the group members. I found out there are many other ways of real estate investing with varying degrees of risk and return.
8) I purchased umbrella insurance to protect my assets.
9) I’m in the process of researching and purchasing a long-term care insurance policy for my parents.
10) There are still many areas I still need to learn and/or make improvements on. So I do a lot of homework after a day in the office.
Things I did correctly from the very beginning:1) I paid off as fast as possible all my debt in form of car and school loans.
2) I am still driving the same vehicle I purchased in 2002. My first vehicle I paid off and it was totaled in an accident. I took the insurance check and some of my emergency cash and purchased a used vehicle. I was the third owner of the vehicle and have been driving it since.
3) I established a disciplined saving plan and started saving and investing a small amount of money every month with the initial goal of maximizing my Roth IRA contributions. Then I focused on maximizing my employer retirement account. Any other funds after that went into taxable accounts.
The disciplined saving helped me because it set me up to reap the gains from the market recoveries after the bear markets of 2000-2002 and 2008-2009. Not that I was fully knowledgeable about my investments and allocations, but the saving plan made me save consistently through those two bear market periods. The shares I purchased during those two periods skyrocketed in value when the market recovered.
4) I avoided taking on additional debt.
5) I found ways to keep living expenses under control. I learned how to cook and to make meals at home.
6) I exercise consistently to stay healthy. It’s a requirement with my career, but exercising has been ingrained in me. I will exercise until the day I cannot move.
I hope all of this helps!