When we last checked in with our young aspiring early retiree, he was buried under a mound of mortgage debt, out of cash, out of hope, and spending his evenings playing David Gray songs on the guitar while imbibing gin and tonics so he could sleep
Will he forever be locked in the pit of despair? Will his employer cut him loose and the bank take the house?
Probably not, but no story is complete without a little drama
“Everybody take the $100 bill we asked you to bring out of your pocket and hold it up in the air”
1 thousand arms go up, bills waving about rhythmically
The past two hours had gone by in a blur, with audience dutifully completing the speaker’s carefully crafted sentences. I felt like I might be at a Heaven’s Gate religious group cult meeting
But No… this was a get rich seminar, Open Your Millionaire Mind or some drivel like that
Volunteers were setting up tables at the front of the room with burning candles.
“OK, we are going to do an exercise. When I give the command, form a line leading to the table at the end of your row and place your $100 bill into the flame.”
“WTF!”, I thought. I looked around and saw countless others doing the same. The look of determination on some faces was disturbing
“OK, everybody get in line.” People started to line up, a surprising number of them. As the first made their way to the front, many of the undecided started to follow. I put my $100 bill back in my wallet and sat down.
As the lines grew longer, the staff blew out the candles. The lights came back on as the speaker said, “That’s it, the exercise is over. Everybody return to your seats. Take 5 minutes and think hard about your true feelings of this exercise, and write them down in your notebook. What does it say about your relationship with money?”
I’m pretty sure what it means is, if you got in line to burn $100 you are probably a good candidate to sign up for a $4,000 “special training”
I have fond memories of my childhood. I would ride my bike around the neighborhood, go swimming in the neighborhood pool, play basketball with the neighbor kids, climb trees and play in the woods, catch snakes and frogs, and run around in the dilapidated barn on the neighboring farm. In Modern America, all of these activities would probably be considered inappropriate for an unsupervised boy, but we just considered them normal
It wasn’t until later that I learned we were poor. I was born when my Mom was 16 years old, and she had to drop out of high school. She got married when I was 4 years old, and 3 other children quickly followed. I spent a lot of time with my Grandparents and nights sleeping at my Aunt and Uncle’s house while my Mom went back to night school. (Unfortunately my Grandfather passed away last year, but his name will live on via GCCjr)
It turns out poverty in America isn’t really poverty, at least not in comparison to what we’ve seen in our travels in the developing world. We always had plenty to eat, much of it from a garden or paid for by Uncle Sam. We had heat in the winter, except those few times when the furnace didn’t work. The school bus took us to school each day where we received a good education. The library was a source of endless entertainment, and Mom would read to us each night (which is probably why school was easy.)
The real world was also a great teacher. I learned not to ask for anything, because that would result in an argument and a lecture about how “we can’t afford it.” I learned that if you want to go somewhere, the best way to get there is by bicycle and the power of your own legs. I learned that people who got into debt were asking for trouble. I learned not to be wasteful, and that it is possible to fix just about anything with duct tape and/or WD-40.
But I also learned a lot of unhealthy and self-defeating money behaviors. The poor people I grew up with had some pretty messed up thoughts about money, and a general anger towards and mistrust of those who have it.
So as I started to accumulate savings of a size that you don’t just keep in a savings account, I didn’t have a road map to follow or even a really good sense of where to look for one. I was invited by some friends to a financial or real estate investing seminar or two. Which is a lot like a gazelle walking into a pride of lions and baring its neck. Seminars and Investment “gurus” prey on ill informed people like me
While my skepticism and distrust saved me from the worst of it, at one event I met a Financial Adviser
Hiring a Financial Adviser
It had been 2 years or so since the Big D. I had returned to my employer’s good graces by reverting to my workaholic ways, unknowingly following Dale Carnegie’s advice to work hard to beat depression from How to Stop Worrying and Start Living. And by good graces, I mean they didn’t fire me. I wasn’t yet worthy of a raise or a bonus
I refinanced the mortgage twice as interest rates fell and continued to contribute the max to my 401k. Net worth had grown to ~$200k, half of it in home equity or tax-deferred accounts, although the home equity part was suspect as the real estate market was still in decline. I didn’t know what to do with the savings I had, so why not hire a Financial Adviser?
At first glance, the Financial Adviser value proposition looks pretty good. Trade as much as you like, there are no trading fees of any kind. Mutual funds waive up-front fees and offer lower expense ratios. A friendly and knowledgeable guy will take you out to lunch, help you learn about stock options, and fill in any knowledge gaps you might have. They even validate parking
My one question before signing the contract with my new CFO was, “Do you need to work for a living?” At one point his wife was worth $400 million from her employer stock options, but they only cashed in on 10% of that before the 2000 crash. He was there because he enjoyed the work. His fees were only 1% of assets under management, so roughly $1,000 per year on my $100k.
Over the next few years we would spend an hour together every 2 – 4 weeks, and we became good friends (he later moved to Boston and asked if I would mentor his son who was staying in Seattle.) I would call regularly with questions and send detailed questions ahead of our meetings. I learned a great deal from him and my net worth continued to climb (how could it not, we were once again in a bull market.)
For the most part, we worked well together and he was open and honest. When he did recommend something with commissions, he would tell me. Once he presented an option to open a life insurance policy to allow more tax-deferred savings, where all fund options in the policy had 4.5% up front fees (only disclosed in the small print’s small print.) I told him to never try something like that again, and he didn’t
Another time he offered a closed-end fund that was building some hotels. Shares could be purchased at a 10% discount to maturity value, and would pay 7.5% on the face value. I bought $20k of them with money borrowed from a credit card at 0% and did well. Later in life, I wondered why companies like this didn’t just borrow money from a bank at prevailing market rates. It would be a lot cheaper. And then I realized, the banks wouldn’t lend them money… so probably not a wise investment for me either
In total, I probably paid my Financial Adviser $5,000 in direct fees for his services, maybe more maybe less. It was a lot cheaper than my college education and equally as valuable.
What I paid him in indirect fees through higher than necessary mutual fund expense ratios and hidden commissions, plus taxes on active trading and lagging performance to the index I don’t even want to know.
The advice I would give my younger self is to read Jim Collins’ stock series and be done with it
I terminated our relationship after maybe 3 years as I became a more confident investor and realized that index investing was the smarter play
My First Adult Vacation
As a child, life is well balanced. You go to school 5 or 6 hours a day. Maybe you play sports or take music lessons. And you have a healthy amount of vacation
With Spring Break, Winter Break, and Summer vacation, plus numerous 3 day weekends, 30-40% of time is unstructured free time, time to refresh and recharge.
As an adult, all of that is tossed aside. You are a man now, time to be responsible. Now you work 40 hours a week for 50 weeks out of the year. Or in my case, 70-80 hours a week, 52 weeks out of the year.
All through college I worked. I started my first job on Monday after graduating on Friday, moving myself over the weekend. I did the same before starting my job in Seattle, although this time somebody else did the physical labor. 3 years later, I took the first vacation of my adult life, going to the Philippines with a girl I had started dating (her idea, I didn’t really want to go)
The first week, I could not stop thinking about work. I was on an incredible beach on a beautiful island, SCUBA diving by day and eating fresh seafood chased by tropical drinks at night, and all I could think about was work. My brain knew nothing different, and refused to consider that it could rest
The second week, I started to relax. I checked email less often. I slept a little longer. I laughed a little more
By week three I was starting to think, “How can I do this every day for the rest of my life?”
The girlfriend didn’t last, but the idea did. It was October 2002, and the clock had started on 10 years and a day
Things are looking much better for our aspiring early retiree. His quest for knowledge and financial success is not without a few road bumps, but each mistake is a learning opportunity
Slowly but surely the number of things being done right is outweighing the mistakes, most importantly saving a high percentage of income (maybe 25%.) And best of all, the idea that building wealth isn’t for a vague notion of retirement far in the future, but potentially for a very specific purpose in the near term is starting to take form
And just around the corner, he is about to meet somebody that will change his life forever. Come back next time and see how it all plays out