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What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:05 am
by Whit
Hello all, I'm a long time reader but i finally decided to register and ask a question.

This fall I will be in a position to teach a personal finance class. As I was reading through the curriculum I started wondering if a boglehead would look back on their financial history what big idea's/concepts would they wish they had learned much earlier in life?

-Whit

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:16 am
by livesoft
It seems to me that a lot of folks would have liked to have learned sooner that many financial advisors and insurance salesreps are incompetent, not your friend, and are out to get your money.

Burton Malkiel's book "A Random Walk Down Wall Street" was first published I think in 1973. I have a copy from 1990 which was early enough for me.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:18 am
by SimpleGift
Whit wrote:...what big idea's/concepts would they wish they had learned much earlier in life?
To develop a written Investment Policy Statement just as soon as one starts investing — or even before.

Personally, I flailed around a bit in the beginning, experimenting with various asset classes, tilts and notions about asset allocation that ended up costing me, both in terms of performance and extra taxes. If I'd done a better job of planning first and developing a written investment plan, I'd have been better off and wasted less time and resources.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:20 am
by Schu
Understanding the dimension of time, and how the dimension of time and money works with age, consumption, savings, debt, etc.

I'm still working on it myself.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:21 am
by livesoft
Will your students learn how to fill out their own income tax returns? I know many teenagers whose parents do it for them. I started doing my own tax returns with my first W-2 job at age 16.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:27 am
by peppers
It's hard to soar with the eagles when you invest in turkeys.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:33 am
by momar
Geometric vs arithmetic average returns

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:39 am
by Habarnam
livesoft wrote:It seems to me that a lot of folks would have liked to have learned sooner that many financial advisors and insurance salesreps are incompetent, not your friend, and are out to get your money.
In addition to that, learned that I am incompetent at choosing stocks, and I have no hope of becoming average either.
livesoft wrote:Burton Malkiel's book "A Random Walk Down Wall Street" was first published I think in 1973. I have a copy from 1990 which was early enough for me.
I wish I would have learned about index funds and the effect of expense ratio on total returns.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:42 am
by just_trailing
The fact that life is not about learning things sooner. It is about enjoying the process.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:45 am
by staythecourse
This get asked often, but here is my take:

1. The importance of saving early and saving often. This is easy to demonstrate if you look at any of those "how much do you need to save to make million" if you started at 20 vs. 30 vs. 40 vs. 50.
2. The SINGLE most common theme to everybody's answer to "what was your worst financial mistake in your life" ALWAYS comes down to taking on TOO MUCH single company risk. It doesn't matter if it was Enron, Poloroid, my cousin's idea for a new restaurant, etc...
3. Not trusting one self's own ability to handle their money. Folks get brainwashed early into thinking handling your own finances is difficult and if you don't have a degree in finance one shouldn't do it.
4. You don't need to know ANYTHING about valuations, i.e. how to read a stock report to be a great investor. Two totally different things.
5. TRUSTING anyone with your money. As the late Harry Browne once wrote, "keep as few as possible from your money as you can"
6. Their truly is NO FREE LUNCH. The higher expected return HAS to mean higher risks. No way around it.
7. It is no only okay, but preferred, to be the contrarian when it comes to investing. That means constantly not following the crowd at a cocktail party or what the "experts" say on CNBC.
8. Understanding what even constitutes active management.
9. Coming to bogleheads earlier. There is no place with more intelligent folks more willing to help others with their finances with no motives for themselves.

Good luck.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:46 am
by pennstater2005
Picking individual stocks is a losers game.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:57 am
by Swampy
Depending on your age and cash flow needs, the absolute first thing is to have a minimum of 6 months worth of living expenses available in cash equivalents: MMF, savings, checking or a box in the garage.

Don't even think about beating the market by picking individual stocks or some hot shot fund. I would have been far wealthier had I stuck with dull and boring, low expense ratio index funds. Rebalance annually. There is NO reason to be invested more than 50% in equities - EVER.

Looking for excitement? Go to the races, a ball game or get a lap dance. Investments are the wrong place to look for excitement.

Marry younger, have kids sooner. These will be a greater joy than you can imagine.
-----------------------------------------------------------------------------
Now that I'm not working, I found out that it's really true you don't need nearly as much to live well.


Lastly, don't buy the biggest house you can afford. That's ALL you will be able to afford.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 11:02 am
by HenryPorter
I wished I saved and invested when I was much younger. I had some interest in investing when I was a teen but did not understand the mechanics of it and nil help really putting my money to work for me other than putting it in the bank. Interest rates were phenomenal when I was in school. Even if I bought some CDs I'd have hedged myself better than just spending my wages on throwaway junk. Also, staying in good health, eating well, exercising and keeping optimistic are things that I wish I kept adhered to when I was younger. The lesson is that money is not really what will make me happy. All it can do for me is allow me some freedom.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 11:52 am
by bottomfisher
More discretion with borrowing, particularly student loans

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 12:02 pm
by livesoft
My investing life changed when I learned about Loss Aversion and how to overcome it. Those other behavioral finance traps are also important to know about. Sales reps and advertisers push your buttons using those ideas. You can push their buttons with the same ideas. It's amazing how you can manipulate folks with a few simple bits of knowledge and how you can avoid being manipulated.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 12:04 pm
by Twins Fan
I'm also in the "start young and save often" camp... and that investing can be simple (i.e. boglehead style).

I was told many time by others when I was young to, "start now". I didn't because I didn't know anything about "stocks" and it kind of intimidated me. Wish I would have listened. At least I found the bogleheads when I started even though I started late, so I can say I didn't make a lot of the mistakes talked about. Some small consolation, right? :happy Of course, I'm also starting late, so... :oops:

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 12:15 pm
by Angst
I don't know when I learned this... I think it was inculcated upon me by my parents early on, but it's the thing that I see so many people lacking in their financial behaviors:

The need to live below one's means in order to save for the future and for retirement.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 12:22 pm
by Toons
Whit wrote:Hello all, I'm a long time reader but i finally decided to register and ask a question.

This fall I will be in a position to teach a personal finance class. As I was reading through the curriculum I started wondering if a boglehead would look back on their financial history what big idea's/concepts would they wish they had learned much earlier in life?

-Whit
Not really ,experience is just applied failure,glad I didn't know what I didn't know.No regrets :happy

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 12:25 pm
by baw703916
What it took me a long time to realize is that over time equities usually have positive returns. This was a function of my age--when I entered college (early 80's) the stock market was right where it was back when I was three years old. So I had kind of internalized the message that one had to actually beat the market (as opposed to just participate in it) to build assets. This was underscored by stories from my parents of their childhood during the Great Depression. Fortunately, by the time I actually had any money to invest (after college, grad school, and a postdoc) the 80's - 90's boom had given me a more realistic perspective.

The reason this may be relevant to your students is that their experience is likely to be similar (the S&P is pretty much where it was 13 years ago, with a lot of drama in between). Basically, you have to convince them that their entire life has been an unusually negative period.

Brad

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 12:34 pm
by IlliniDave
1) and 3) from staythecourse's list plus:

Minimize the croupier's take. My single greatest financial mess up (other than marrying the wrong person) was remaining ignorant of the devastating effect of management fees. I thought of it in "linear" terms and totally missed the boat on the truth that it's a compounding geometric demon. And I'm pretty adept at math. I could likely retire today if it weren't for that oversight.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 12:37 pm
by Bounca
Why did I buy that brand new Dodge Dakota sport pickup at $18000 in 1994 and instead purchased a much lesser, used vehicle and invested the rest. I was 23 at the time. I'm 41 now.

Invest and be frugal early in life.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 12:40 pm
by YDNAL
Whit wrote:This fall I will be in a position to teach a personal finance class. As I was reading through the curriculum I started wondering if a boglehead would look back on their financial history what big idea's/concepts would they wish they had learned much earlier in life?
Whit, welcome to the Forum!

For ME, it is not so much "learning" but "underestimating" the power of compounding. As we finish school and embark on our working lives, there are many goals and other requirements that we may prioritize before saving for the future. That may not necessarily mean living beyond one's means, but poor prioritizing.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 12:46 pm
by 1210sda
1. Passive investing in general and the three fund portfolio specifically
2. The majesty of simplicity

1210

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 12:52 pm
by hoppy08520
Without a doubt, what I wish I had learned sooner: you don't have to spend everything you earn.

Fortunately I have always invested around 10% of my income in retirement accounts, which is better than most people, and I thought I was doing fine because I had read here and there that 10% is "the right amount." But in hindsight, I know I could have spent less and saved more, and I'd be in much better shape today. Today I'm saving much more aggressively, but it would have been nice if I had figure that out 20 years earlier because of the benefits of compounding.

Another way of putting this is that while I agree with "pay yourself first", that advice might not go far enough. I thought I was paying myself first by saving 10% of my salary. I thought it was fine to spend the other 90%.

What I wish I had done was more like, "spend only what you need, save the rest." In other words, don't put the emphasis on hitting an arbitrary savings target, but instead put the emphasis on spending just what you need, and save/invest the rest.

Sure, I could have made some better decisions on how I invested the 10% that I saved (like discovering Boglehead-style investing earlier), but it wouldn't have moved the needle as much as if I had managed to spend less and save more.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 12:58 pm
by runner9
Assuming this is for high school students I'd start with basics like saving, compounding interest/returns and cost of fees. Plus, interest and risks with credit cards, good steps and basics about buying a home or better yet borrowing for college.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 1:09 pm
by livesoft
I think the basics for teenagers are how to use their iPhone for mobile banking, buying songs at iTunes, and how to avoid overdraft charges on their debit card.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 1:22 pm
by Whit
livesoft wrote:Will your students learn how to fill out their own income tax returns? I know many teenagers whose parents do it for them. I started doing my own tax returns with my first W-2 job at age 16.
For the most part yes, we will do basic 1040 returns and include schedules that students will likely use in the near term (A, B, ...). We don't get into anything overly complicated and don't touch on schedules that student will not likely use soon (H, R...).

-Whit

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 1:32 pm
by soaring
Rebalancing

teach your brain to save...something... even if just a little - I knew this in the 70's but see so many that don't understand

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 1:46 pm
by Grt2bOutdoors
Working for the government can be lucrative. :oops:

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 2:52 pm
by Scooter57
Even though it can be boring, you have to study the ins and outs of investing. Read books, not blogs. Lots of books. Sample a lot of opinions. Take your time. Never invest hastily, give any idea that appeals to you some time to let that enthusiasm burn off. Avoid all investing advice you see on TV or media websites.

If you rely on others to guide your investments you are more likely to enrich then than yourself. The most pleasant, personable, helpful people in the pro investment world are the ones most likely to siphon off a lot of your money.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 3:02 pm
by DaleMaley
When I got out of college and started working, I already learned the value of saving from my parents.

I learned about stocks being about the only way to grow wealth from an adult ed classs.

The thing I wished I had learned earlier was that a diversified portfolio of index funds is the way to go. I floundered around trying to predict which actively managed funds would do the best in the future. It took me about 10 years to finally discover index funds back in 1990.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 3:06 pm
by bengal22
LIfe is not all about having money but having it sure increases your options.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 3:59 pm
by K'zoo
No. 1:
livesoft wrote:It seems to me that a lot of folks would have liked to have learned sooner that many financial advisors and insurance salesreps are incompetent, not your friend, and are out to get your money.......

No. 2: That out of the many thousands of actively managed funds, some are going to do well--even several years in a row--based on mathematical probabilities alone and not because of any particular skill on the part of the manager. I don't think my former FA understood this and even if she had, it wouldn't have made a difference, given No. 1 above.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 4:19 pm
by CrossOverGuy
"Wall Street" has a vested interest in making things sound very complicated so they can sell you their services and products at much higher rates than are necessary. You can tell your students that anything that they can't understand isn't worth investing in. They can, with a diversified portfolio of low-cost no-load index funds at its core, do much better for themselves than the "experts" ever let on.

Use a credit card as a convenience only; pay it off when the bills come in, since while compound interest is a dream as an investor, it's a nightmare when you owe on a card balance.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 4:20 pm
by gnosis
That we should have bit the bullet from the get-go with a 15-year fixed mortgage instead of 30-year fixed. Could have had so much more equity now just 5 years later.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 4:30 pm
by Dadarkar
1 Inflation slowly erodes your wealth
2. Brokerage and financial advisers sell expensive products
3. Have IPS and review it regularly

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 4:38 pm
by wilpat
Save Save Save!!! I started working 59 years ago and worked for 58 years (loved every minute of it!). I have saved enough for myself and wife and some for kids and grandkids and great grandkids, but if I had done it properly I would have at least 20 times as much as I have now!

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 6:17 pm
by DaleMaley
Another thing that did not apply to me when I was young, was the impact of 401K fees.........because there were no 401Ks.

But for young people now, it is a huge deal.

I knew from Jack Bogle's books that expenses were a big deal............but on the recent PBS special on 401Ks.........Jack put it in a way that really hit home with me. He said, paraphrasing........In a 401K, the employee does 100% of the saving, takes 100% of the risk, yet with 2% total fees over a 50 year horizon (working career plus retirement)...........the employee only gets to keep 1/3 of the wealth.........and Wall Street gets 2/3 of the wealth.

I plugged this into an Excel spreadsheet, and Jack is basically right.

I was recently shocked to find my daughter's 401K plan has investments that range in annual total fees from 1.5% to 2.5% ! She has no option to buy funds outside the ones offered by the insurance company doing the 401K.

My son works for the same company I do, and the basic funds have fees around 0.2% per year. We also have an option to buy Vanguard funds in a self-managed account.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 6:21 pm
by Grt2bOutdoors
livesoft wrote:Will your students learn how to fill out their own income tax returns? I know many teenagers whose parents do it for them. I started doing my own tax returns with my first W-2 job at age 16.
I was filling out my older siblings income tax returns at 14, in pen! It was much easier back then - 1040 EZ. Not so much today, even with a software program. :annoyed

To answer the OP's question: Do not rely on anyone but yourself for becoming financially secure or independent. What I mean is you can obtain knowledge, however the actual dollars and cents that accumulate in your account will come from one's own hard work and effort to save. At the start of my career, my employer offered a nice pension plan, a profit sharing plan and an ESOP plus retiree healthcare - the perfect trifecta that allowed career employees to walk out with 70%+ of their salary at retirement, not including Social Security. Fast forward ten years, the pension is gone, the profit sharing plan is gone, the ESOP is gone, retiree healthcare is gone. Employees who failed or fail to save will be solely dependent upon the government for basic survival. Always have a backup plan, if you can.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 6:22 pm
by MnD
gnosis wrote:That we should have bit the bullet from the get-go with a 15-year fixed mortgage instead of 30-year fixed. Could have had so much more equity now just 5 years later.
I'd put this one at the top of the list as well.
I'd have a paid off house now for 7 years instead of 4 more years to go.
And I would have missed out on the "joys" of still making a house payment with two kids in college. :annoyed

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 6:35 pm
by HenryPorter
One thing I'll comment is that I work with many college age co-workers and based upon daily interaction with most of them, I think many of them would scoff at the idea of investing simply because it takes money away from them that they could spend NOW. They have bills and only so much of a paycheck and to them, investing probably sounds too tall an order to think about. I kind of believe their parents might not tell them much about investing because the parents believe the kids will climb the income ladder anyway and probably sign up with a 401K or maybe get married and have a spouse who manages the finances in some cases. I really don't know. Not so much my worry but I'd love to help out the younger ones with advice but I don't think they would act upon it. Thing is, they have so much easier access to setting up IRAs and mutual fund accounts than I did when I was in college. It was foreign info to me, shrouded by the media reports at the time of Wall Street being a cut-throat entity that stole money with the little guy fodder for that. I think the bias I had, with images of the Ivan Boeskys and Michael Milkens of the world taking and gaining, without doing anything more than being greedy enough to do it, turned me off to stocks and wanting to have anything to do with it. I formed an opinion that stock traders, and stocks in general, were somewhat immoral because I did not see how one should profit from the gambling aspects they represented. I expected money to be more organically used I guess. Now, I see money as just an asset that goes somewhere, whether into cash, bonds, stocks, real estate, precious metals, etc. Don't see money as something that means much more than the paper it is printed on or the goods and services it can get. Don't want to think about it being bad or good, just a tool to keep me from standing on the highway median with a sign.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 6:39 pm
by Ged
Asset allocation and rebalancing.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 6:43 pm
by HenryPorter
DaleMaley wrote:..the employee only gets to keep 1/3 of the wealth.........and Wall Street gets 2/3 of the wealth.
If ever there is a quote to make one want to think about using low-cost index funds chiefly, that is it. Especially if you take a conservative approach and estimate annual market returns will be in the single digits range. Also, after a while, one just gets tired of fighting the math of how the market produces its returns and rather just have the lion share of the return and not care about finding the 1 fund in 100 that beats the market every year in a row for umpteen years.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 8:43 pm
by Watty
Whit wrote:Hello all, I'm a long time reader but i finally decided to register and ask a question.

This fall I will be in a position to teach a personal finance class. As I was reading through the curriculum I started wondering if a boglehead would look back on their financial history what big idea's/concepts would they wish they had learned much earlier in life?

-Whit

There are only three things in investing that you can reliably control.
1) How much you save or spend each year.
2) Keeping investing cost low.
3) You asset allocation.
These can easily be done with regular contributions to low cost index funds. You cannot reliably do things like pick superior stock or time the market.

also

Once you have your essential needs meet then when you spend money on yourself you get a lot more "bang for the buck" by spending it on getting experiences instead of "stuff". The comparison I like to bring up that you likely got a number of holiday or birthday presents two years ago. Compare how many of those you can even remember now verses your memories of trips, concerts, plays, parties, fun classes or other events that you did two or even ten years ago.

also

If you are living paycheck to paycheck and think you are living within your budget then you are mistaken since you will occasionally have things like car repairs, doctor or dentist costs, etc. These are expected expenses, it is just that you don't know when they will happen.

also

If anyone knows how to reliably beat the market then they would be guarding that secret like the gold in Fort Knox. Anyone who claims to know this and posts it on the internet, offers to manage your money, sell you a book, etc does not know this secret.

There could conceivably be superior money managers in the world but they would be working at the top of Wall Street or for billionaires. The less good ones would be working for multi-millionaires and large companies. And so on down several levels, until the lowest quality ones would be working for people with you and me.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 8:51 pm
by feh
Proper diversification and the importance of keeping expenses to a minimum.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 9:08 pm
by bogleblitz
don't buy any single company stock.

Buy a mutual fund that contains thousands of stock like 'Vanguard Total Stock Market Index'

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 9:25 pm
by gkaplan
We have a poster with the user name of FredCouples. (I assume he's a golf fan.) I believe he teaches high school personal finance, or something of the sort. You might check some of his threads out.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:00 pm
by Fallible
The power of compounding. If I'd truly understood it when I was young, I might have started saving earlier.

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:08 pm
by zaboomafoozarg
The importance of using tax-advantaged investment space when you have the opportunity. Wasted my first few working years investing more in taxable than in my 401k, and not even opening an IRA. I didn't realize the tax implications, or the benefits of filling up tax-advantaged space first, at all :oops:

I am glad I found this site when I did though :D Better late than never!

Re: What do you wish you had learned sooner?

Posted: Sat Jun 29, 2013 10:36 pm
by natureexplorer
The complicated system of tax-advantaged accounts.