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February 16, 1999
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Journal Readers Expound On
Their Biggest Financial Goofs
By JONATHAN CLEMENTS
Staff Reporter of THE WALL STREET JOURNAL
Opportunities missed. Bad advice taken. Savings that were spent. Stock-market wounds that were self-inflicted.
You will find all kinds of financial mistakes described below. These letters came in response to my Jan. 5 Getting Going column, in which I invited readers to write in describing their dumbest financial moves. The letters were edited for brevity.
Many of the mistakes were costly, which means they offer valuable lessons. After all, if you can learn from the errors of others, you could end up saving yourself a bundle.
Take Their Word On It
"One of my dumbest financial moves is buying into what I dub 'learned financial helplessness.' The cause of this malady is listening to the constant noise of pundits telling us that we need $1 million to retire. Instead of launching me into saving more, it does nothing but scare and emotionally freeze any positive action." -- Christopher L. Hayes
"My dumbest move was to engage a slick-talking financial advisor. He advised me to put my 401(k) money into a variable annuity with all the normal surrender charges." -- Richard Davis
"Never take advice from either knowledgeable friends or established brokers without independently checking it. I've made a few stock buys over the years based on 'hot tips' and only one was successful, while most are almost worthless." -- Bob Baldwin
"The most ignorant thing I ever did was to let my former financial advisor put my rollover pension funds into a variable annuity with a seven-year declining contingent sales load. The dumbest thing I ever did was to let him roll it over into another variable annuity with another seven-year sales load. I am eagerly awaiting the day I can rectify that mistake." -- Mike Sheehan
Spending Too Much, Saving Too Little
"I didn't keep track of my ex-wife's spending on credit cards in her name. During four years of marriage, she managed to run up nearly $50,000 in bills. Needless to say, I paid for that mistake during the divorce." -- Robert Atcher
"The stupidest thing I've ever done financially was buy a classic car as an investment. In 1995, I spent $7,500 on a 1964 Mercedes. Shortly thereafter, I had to fork over $4,500 in repairs. I have been trying to sell the car for several years now at the original $7,500 purchase price. No takers so far." -- Randy Glover
"Not once, but twice I made the mistake of buying a new car instead of used." -- Kurt P. Herzog
"We should have started earlier. The savings rate required when you don't really start putting away for your retirement until your 40s is so much greater than if you had begun an earlier, modest investment program. We now have to put away 20% to 25% of our income." -- Rick Smith
Learning On the Job
"I'm a lieutenant commander in the Navy. At my first duty station in Florida, I bought a condominium which dropped in value, as it seems all condominiums do. I couldn't sell it when I left, had to rent it for a few years and still sold it for a loss when I got tired of bleeding money every month. I've since come to the conclusion that it is very hard to even break even in real estate when you move every three or four years. I think I'll rent for the rest of my Navy career." -- Bill Hamblet
"Back in 1988, I worked for a publicly traded disk-drive manufacturer and acquired shares through the company's employee stock ownership plan. Even though I had a bird's eye view of the company's self-destruction, for some reason I held all my shares all the way down to zero." -- Mike Benson
"My dumbest financial move was to take out a home-equity loan to start up a business. The business failed due to lack of planning and marketing. I am still suffering the ramifications." -- Maureen Lucchesi
The Agony of Regret
"My biggest mistake was not investing in mutual funds sooner. I stuck with bank certificates of deposit with my first individual retirement account contributions and finally made the move to mutual funds in 1991. I missed a pretty good decade of returns in the 1980s just because of my fear of losing my principal value." -- Ricky L. Holbrook
"Years ago, I bought some plotting paper and starting tracking the individual stocks I purchased based on news, hype or association with a product or service. Unfortunately, my base line was too close to the bottom of the page and, after a period of decline, most of my stocks dropped off the page. -- Francis Bourgeois
"All my life, I have had written goals for my career and personal life. The one area I had no contingency plan for was a divorce that I did not know was coming after 25-plus years of marriage. The wealth I had accumulated, mainly for our retirement years, was significantly impacted. I wish I had planned our position such that if a divorce occurs both of us would be financially sound. Since the divorce rate is so high, I recommend all couples consider this as part of their planning." -- Anthony P. Mauro
"As I review my brief investment experience, I realize a key mistake during earlier years was failing to invest in index funds as core holdings for my portfolio." -- Thomas Chin
"A big mistake I made when starting my career was purchasing whole-life insurance. It's sold as an investment, but the truth is that it's a money loser after commissions are paid. In addition, you're dependent on the life-insurance company to pay dividends if your investment is to grow. I canceled the policy after a year and a half and lost everything I had paid." -- Daniel T. Walker
"My mistake: Not investing in Microsoft in 1989. This, despite the fact that I am an avid computer user." -- Joe Petitjean
"During what my accountant refers to as my 'peak earning years,' which came when I was financially naive, I made loans to two friends, both of whom were starting their own businesses. Both businesses failed, both friends used bankruptcy protection, the money is gone and the friendships no longer exist." -- Jill Mabley
The Devil Made Me Do It
"I sold my Microsoft when Uncle Sam said it was going to court with its lawsuit. From that move, I have learned not to panic too quickly." -- Ed Campany
"The worst investment I ever made was buying a U.S. government-bond fund in the early 1980s. I had no idea about the risk side of the risk-reward equation. Nothing could be safer than Uncle Sam, right? The fund dropped about 10% in a couple of weeks and I bailed. Of course, the fund came roaring back over the next couple of years, which was easily in my time horizon." -- Todd Eggenberger
"I bought shares of two companies only because the share price was below $10. One company went bankrupt within the month and the other languished for a year." -- Bob McGovern
"My worst financial decision was to put in a market order on the first day of trading for an initial public offering. Almost always, it seems, one ends up paying for it at the high for the day and wind up a loser at the close." -- Gordon Mitchell
"Dumbest move: Selling a third of my Eli Lilly stock, because of the summer stock plunge. Smartest move: Not selling the other two-thirds." -- W.D. Lynn Jones
"Purchasing penny stocks is hazardous to your financial condition. I have finally learned that it is extremely unlikely that purchasing a penny stock will yield significant returns." -- Jim Shute
Too Taxing
"My dumbest move was opening accounts a couple of years ago for my three kids and putting about $10,000 each into a mutual fund. The problem is, I did it in early December, instead of waiting for January, so I had to pay capital-gain taxes on the distributions. I also had to file three extra tax returns." -- Steve Johnson
"I sold IBM at its low a few years ago, to take a tax loss to offset other gains, and then didn't buy it back." -- Graham Byrum
"My divorce settlement came from a 401(k) plan. A stock broker told me there was no way I could deposit it into an individual retirement account. I paid $79,000 in income taxes last year. I am a school librarian making only $34,000 a year with two children in college. The woman's bad advice will cost me for the rest of my life." -- Barbara Murray
"I re-balanced my portfolio at the beginning of 1998 and, in the process, incurred $35,000 in capital gains. After the fact, I realized that if had I sold and re-bought when the marked dipped, I could have eliminated my gains. Another expensive lesson." -- Aleta Wilson
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