Lessons Unlearned
MY PARENTS WERE profoundly influenced by the Great Depression and—as their only child—I was, too. My father had seen my grandfather, who was a successful small grocer, lose everything when banks failed in the 1930s. My father never trusted banks or the stock market again. He fully expected another depression somewhere just over the horizon.
My mother grew up in Appalachia without electricity or indoor plumbing. She had a tremendous work ethic, making it clear to me that work always came before fun. She readily deferred spending in favor of saving. Her greatest fear was to experience once again the cold she felt in winters during her childhood.
My father imparted wisdom through a series of pithy phrases. These included exhortations such as “initiative is doing the right thing at the right time without being told” and “what’s worth doing is worth doing well.” He promoted and practiced the Golden Rule: “Do unto others as you would have them do unto you.” These positive influences shaped my character.
But when it came to business and personal finance, I was taught “it’s not what you know, but who you know,” implying a rigged game. “You need to have money to make money” suggested the little guy wasn’t welcome in the financial world. He preached that, when it came to money, “you can’t trust anyone, not even your grandmother.” And he’d say—in a derogatory tone—that an acquaintance “has more money than he knows what to do with.” Money to him was ephemeral and not worth devoting time to. These negative images colored my early thoughts about money.
Neither parent was extravagant. Neither spent to maintain social status. My mother scrimped. My father spent somewhat more freely.
My father was a self-employed general practice physician with no pension, little savings and no ownership of stocks or bonds. He had a wide variety of interests and readily contributed time to community projects and boards. But he was unwilling to put effort into understanding the business or financial world. This lack of interest led him to make “investments” without doing basic due diligence, leaving him at risk of being scammed.
From three to two. My father’s retirement was forced by a cancer diagnosis. He came home ill from work one day and never returned to the office. His retirement lasted nine months, most of it consumed by the illness. When he died, I was age 17. He had life insurance that provided my mother with a small nest egg. The house was paid for, and she had a job with solid benefits, so our immediate needs were met. I qualified for both Social Security and veteran’s dependent benefits, which went a long way toward covering future college expenses.
My mother was left with 15 years to prepare for retirement. She and I had zero investment experience, and our family had no investment advisor to turn to. My father’s words about trusting no one rang in our ears, making us fearful about whom we could approach.
It was the late 1970s, and interest rates were much higher than today. Our initial investment of the insurance proceeds consisted of certificates of deposit at a savings and loan. In the regulated environment of the time, the Federal Reserve’s Regulation Q allowed S&Ls to pay a quarter-percentage point more than banks, and they often handed out a household appliance as an inducement to open new accounts. This could be considered our first strategic investment: a quarter point and a toaster.
With the spike in interest rates in the early 1980s, there was a lot of press about a relatively new concept: money market mutual funds. They were discussed in my college finance classes. We took the plunge and moved some maturing CD money into Fidelity Investments’ money market fund, which was paying double-digit rates.
I came to realize that we needed to prepare for my mother’s retirement. She had the beginnings of a retirement fund. If we managed it well, it could support her. If not, I would be supporting her. From my reading, it was clear that we needed to think about investing in the stock market. My mother had a small amount of stock in her name from her employer and had, at some point, put money into a stock fund from Investors Diversified Services (IDS), a forerunner of Ameriprise. We contacted IDS to identify a representative, who came to the house to talk with us. I remember jotting down his profound statement “buy low, sell high” on my notepad. To invest with him, my mother wrote a check for $20,000 from a maturing CD.
As I continued to learn, I started to understand the amount of commission and fees built into our IDS investments. I couldn’t get comfortable with the representative profiting off our transactions. We eventually liquidated those investments and moved the money to Fidelity, where we had previously opened the money market fund. During the severe recession of 1981-82, as a result of research plus a bit of luck, we put money into Fidelity Magellan Fund, run at that time by legendary mutual fund manager Peter Lynch. Later, we invested in Fidelity Equity-Income Fund. When individual retirement accounts first became available to all workers, we immediately opened a Fidelity IRA for my mother and bought stock funds.
With this foundation, my mother had the makings of a sound retirement. Her work would provide a modest pension and excellent health insurance to supplement Medicare. Ultimately, her company offered a buyout, and she was able to retire early with sufficient assets for the rest of her life.
My turn to invest. Learning to manage money for my mother at an early age had the benefit of setting the stage for my own investing. After college, I married into a family where stock ownership was the norm. This was a novelty to me: a middle-class family that had faith in the markets and invested for their future. My father-in-law was a conservative investor, and he was preparing thoughtfully for retirement. I learned from his example. He was also frugal, a trait he passed on to my wife.
He had given my wife five shares of AT&T and five shares of General Electric as a college graduation present. For many years, these were our only individual stock holdings, but we added to them with reinvested dividends and zero commission purchases through each company’s dividend reinvestment plan. GE, in particular, soared during this period, with the stock splitting multiple times.
While my mother had a nest egg from the life insurance proceeds, my wife and I had to come up with capital to start investing. From my mother, I learned frugality. Over the decades, I’ve enjoyed some investment success. But what I do better than most is save. My wife and I lived below our means and spent only what we could afford.
In my mid-20s, I realized that—with even a modest salary—30 to 40 years of earnings would represent $1 million to $2 million flowing through my checking account. Siphoning off some of those earnings along the way, and then investing them, would allow me to build our savings for retirement and other goals. Early on, my wife and I scraped together $1,100 and opened an account at Twentieth Century Investors, now American Century, a no-load mutual fund family. James Stowers ran the company then and had an impressive track record from investing in growth stocks.
Through the 1980s, our investments worked out well for my mother and for us. Still, I had a big fear of losing money and no perspective on market gyrations. At various times, I was scared into selling some of our winning positions by what turned out to be normal market fluctuations. I’m certain that, in every case, I would have done better to hold or even buy more. Over time, I learned that dollar-cost averaging and rebalancing help take the emotion out of investing.
Looking back, I see that this was all part of the normal learning curve. As a new investor, you can gain perspective by talking to mentors, listening to experts and reading up on market history. But there’s no substitute for living through multiple up and down markets, and learning from your successes and failures.
I also recognized that, when it came to my mother’s account, I was not investing for myself but for her retirement. We were at different life stages. I had a much longer time horizon. Losing money for her would be much more painful. I drew a distinction between how I invested for myself and how I invested for her, taking more risk in my account. I saw investments go to zero, but I never saw anything close to that in her account.
Replaying the messages. Like many children, I got mixed messages about money from my parents. Those early lessons have proven hard to shake. When it came time to invest for my mother and me, I had to examine my father’s lessons about money and decide what to keep and what to discard. This took time.
The one lesson from my father that I took to heart—and still struggle with today—is not trusting money advice from others. On the positive side, this drove me to educate myself. I prepared tax returns for my mother and myself, which required that I understand the tax implications of financial decisions. If my investing decisions turned out poorly, I had no one to blame but myself. We had to trust Fidelity, but no individual broker was profiting from our buys and sells.
Through my college and graduate school years, I found opportunities to learn more about investing. Andrew Tobias’s The Only Investment Guide You’ll Ever Need was the first comprehensive book I read about financial planning. I took a tax accounting class as an undergraduate and an evening adult education class in personal financial planning while in graduate school. And I continued to read everything I could about saving, investing and financial planning.
As a result of this do-it-yourself approach, I saved on professional fees and commissions. I’m sure there were times when, from lack of expertise, I made decisions that were less than optimal. Whether these offset the savings in fees, I’ll never know.
My father didn’t just distrust the financial advice of others. He also didn’t trust the entire financial system and felt the little guy wasn’t welcome. But while my father thought the game was rigged, I decided that there were rules to the game, and it was incumbent on me to learn those rules in order to win. I accepted that the markets were far better regulated in the late 20th century than during the boom that led up to the 1929 market crash and which shook my father and grandfather.
When I started working, I immediately opened an IRA. With babies and a mortgage, it was six years before I could max out my annual contributions, at which point I also opened a 403(b) account at work. I increased those contributions each year until I reached the maximum allowed. Dollar-cost averaging, with money flowing into investments every payday, required a faith in the system that my father never had. I had to accept that, even when I was “buying high,” the market’s long-term upward trend would overcome the inevitable dips.
What about my father’s notion that you could “have more money than you know what to do with”? I catalogued my responsibilities: assuring my mother’s retirement, supporting my family, educating my children, and planning for my retirement. It struck me as irresponsible to myself, my family and society if I didn’t prepare to meet these financial obligations.
The flipside lesson of “having more money than you know what to do with” is the notion that, at some point, enough is enough. Continuing to aggressively accumulate after you have “enough” risks making money the end goal, not the tool to achieve financial security. With financial security, to paraphrase the recent book The Psychology of Money by Morgan Housel, you can do what you want, where you want, when you want, with whom you want, for as long as you want. In short, you have choices. If you fail to properly manage money, your choices will be limited or made for you.
In the end, my mother lived out her life with financial security, and my wife and I are set to do the same. Goals achieved—and perhaps that’s all that matters.
Howard Rohleder, a former chief executive of a community hospital, retired early after more than 30 years in hospital administration. In retirement, he enjoys serving on several nonprofit boards, exploring walking paths with his wife Susan, and visiting their six grandchildren. A little-known fact: In May 1994, Howard was featured—along with five others—on the cover of Kiplinger’s Personal Finance for an article titled “Secrets of My Investment Success.” Check out his previous articles.
My mother grew up in Appalachia without electricity or indoor plumbing. She had a tremendous work ethic, making it clear to me that work always came before fun. She readily deferred spending in favor of saving. Her greatest fear was to experience once again the cold she felt in winters during her childhood.
My father imparted wisdom through a series of pithy phrases. These included exhortations such as “initiative is doing the right thing at the right time without being told” and “what’s worth doing is worth doing well.” He promoted and practiced the Golden Rule: “Do unto others as you would have them do unto you.” These positive influences shaped my character.
But when it came to business and personal finance, I was taught “it’s not what you know, but who you know,” implying a rigged game. “You need to have money to make money” suggested the little guy wasn’t welcome in the financial world. He preached that, when it came to money, “you can’t trust anyone, not even your grandmother.” And he’d say—in a derogatory tone—that an acquaintance “has more money than he knows what to do with.” Money to him was ephemeral and not worth devoting time to. These negative images colored my early thoughts about money.Neither parent was extravagant. Neither spent to maintain social status. My mother scrimped. My father spent somewhat more freely.
My father was a self-employed general practice physician with no pension, little savings and no ownership of stocks or bonds. He had a wide variety of interests and readily contributed time to community projects and boards. But he was unwilling to put effort into understanding the business or financial world. This lack of interest led him to make “investments” without doing basic due diligence, leaving him at risk of being scammed.
From three to two. My father’s retirement was forced by a cancer diagnosis. He came home ill from work one day and never returned to the office. His retirement lasted nine months, most of it consumed by the illness. When he died, I was age 17. He had life insurance that provided my mother with a small nest egg. The house was paid for, and she had a job with solid benefits, so our immediate needs were met. I qualified for both Social Security and veteran’s dependent benefits, which went a long way toward covering future college expenses.
My mother was left with 15 years to prepare for retirement. She and I had zero investment experience, and our family had no investment advisor to turn to. My father’s words about trusting no one rang in our ears, making us fearful about whom we could approach.
It was the late 1970s, and interest rates were much higher than today. Our initial investment of the insurance proceeds consisted of certificates of deposit at a savings and loan. In the regulated environment of the time, the Federal Reserve’s Regulation Q allowed S&Ls to pay a quarter-percentage point more than banks, and they often handed out a household appliance as an inducement to open new accounts. This could be considered our first strategic investment: a quarter point and a toaster.
With the spike in interest rates in the early 1980s, there was a lot of press about a relatively new concept: money market mutual funds. They were discussed in my college finance classes. We took the plunge and moved some maturing CD money into Fidelity Investments’ money market fund, which was paying double-digit rates.
I came to realize that we needed to prepare for my mother’s retirement. She had the beginnings of a retirement fund. If we managed it well, it could support her. If not, I would be supporting her. From my reading, it was clear that we needed to think about investing in the stock market. My mother had a small amount of stock in her name from her employer and had, at some point, put money into a stock fund from Investors Diversified Services (IDS), a forerunner of Ameriprise. We contacted IDS to identify a representative, who came to the house to talk with us. I remember jotting down his profound statement “buy low, sell high” on my notepad. To invest with him, my mother wrote a check for $20,000 from a maturing CD.
As I continued to learn, I started to understand the amount of commission and fees built into our IDS investments. I couldn’t get comfortable with the representative profiting off our transactions. We eventually liquidated those investments and moved the money to Fidelity, where we had previously opened the money market fund. During the severe recession of 1981-82, as a result of research plus a bit of luck, we put money into Fidelity Magellan Fund, run at that time by legendary mutual fund manager Peter Lynch. Later, we invested in Fidelity Equity-Income Fund. When individual retirement accounts first became available to all workers, we immediately opened a Fidelity IRA for my mother and bought stock funds.
With this foundation, my mother had the makings of a sound retirement. Her work would provide a modest pension and excellent health insurance to supplement Medicare. Ultimately, her company offered a buyout, and she was able to retire early with sufficient assets for the rest of her life.
My turn to invest. Learning to manage money for my mother at an early age had the benefit of setting the stage for my own investing. After college, I married into a family where stock ownership was the norm. This was a novelty to me: a middle-class family that had faith in the markets and invested for their future. My father-in-law was a conservative investor, and he was preparing thoughtfully for retirement. I learned from his example. He was also frugal, a trait he passed on to my wife.
He had given my wife five shares of AT&T and five shares of General Electric as a college graduation present. For many years, these were our only individual stock holdings, but we added to them with reinvested dividends and zero commission purchases through each company’s dividend reinvestment plan. GE, in particular, soared during this period, with the stock splitting multiple times.
While my mother had a nest egg from the life insurance proceeds, my wife and I had to come up with capital to start investing. From my mother, I learned frugality. Over the decades, I’ve enjoyed some investment success. But what I do better than most is save. My wife and I lived below our means and spent only what we could afford.
In my mid-20s, I realized that—with even a modest salary—30 to 40 years of earnings would represent $1 million to $2 million flowing through my checking account. Siphoning off some of those earnings along the way, and then investing them, would allow me to build our savings for retirement and other goals. Early on, my wife and I scraped together $1,100 and opened an account at Twentieth Century Investors, now American Century, a no-load mutual fund family. James Stowers ran the company then and had an impressive track record from investing in growth stocks.
Through the 1980s, our investments worked out well for my mother and for us. Still, I had a big fear of losing money and no perspective on market gyrations. At various times, I was scared into selling some of our winning positions by what turned out to be normal market fluctuations. I’m certain that, in every case, I would have done better to hold or even buy more. Over time, I learned that dollar-cost averaging and rebalancing help take the emotion out of investing.
Looking back, I see that this was all part of the normal learning curve. As a new investor, you can gain perspective by talking to mentors, listening to experts and reading up on market history. But there’s no substitute for living through multiple up and down markets, and learning from your successes and failures.
I also recognized that, when it came to my mother’s account, I was not investing for myself but for her retirement. We were at different life stages. I had a much longer time horizon. Losing money for her would be much more painful. I drew a distinction between how I invested for myself and how I invested for her, taking more risk in my account. I saw investments go to zero, but I never saw anything close to that in her account.
Replaying the messages. Like many children, I got mixed messages about money from my parents. Those early lessons have proven hard to shake. When it came time to invest for my mother and me, I had to examine my father’s lessons about money and decide what to keep and what to discard. This took time.
The one lesson from my father that I took to heart—and still struggle with today—is not trusting money advice from others. On the positive side, this drove me to educate myself. I prepared tax returns for my mother and myself, which required that I understand the tax implications of financial decisions. If my investing decisions turned out poorly, I had no one to blame but myself. We had to trust Fidelity, but no individual broker was profiting from our buys and sells.
Through my college and graduate school years, I found opportunities to learn more about investing. Andrew Tobias’s The Only Investment Guide You’ll Ever Need was the first comprehensive book I read about financial planning. I took a tax accounting class as an undergraduate and an evening adult education class in personal financial planning while in graduate school. And I continued to read everything I could about saving, investing and financial planning.
As a result of this do-it-yourself approach, I saved on professional fees and commissions. I’m sure there were times when, from lack of expertise, I made decisions that were less than optimal. Whether these offset the savings in fees, I’ll never know.
My father didn’t just distrust the financial advice of others. He also didn’t trust the entire financial system and felt the little guy wasn’t welcome. But while my father thought the game was rigged, I decided that there were rules to the game, and it was incumbent on me to learn those rules in order to win. I accepted that the markets were far better regulated in the late 20th century than during the boom that led up to the 1929 market crash and which shook my father and grandfather.
When I started working, I immediately opened an IRA. With babies and a mortgage, it was six years before I could max out my annual contributions, at which point I also opened a 403(b) account at work. I increased those contributions each year until I reached the maximum allowed. Dollar-cost averaging, with money flowing into investments every payday, required a faith in the system that my father never had. I had to accept that, even when I was “buying high,” the market’s long-term upward trend would overcome the inevitable dips.
What about my father’s notion that you could “have more money than you know what to do with”? I catalogued my responsibilities: assuring my mother’s retirement, supporting my family, educating my children, and planning for my retirement. It struck me as irresponsible to myself, my family and society if I didn’t prepare to meet these financial obligations.
The flipside lesson of “having more money than you know what to do with” is the notion that, at some point, enough is enough. Continuing to aggressively accumulate after you have “enough” risks making money the end goal, not the tool to achieve financial security. With financial security, to paraphrase the recent book The Psychology of Money by Morgan Housel, you can do what you want, where you want, when you want, with whom you want, for as long as you want. In short, you have choices. If you fail to properly manage money, your choices will be limited or made for you.
In the end, my mother lived out her life with financial security, and my wife and I are set to do the same. Goals achieved—and perhaps that’s all that matters.
Howard Rohleder, a former chief executive of a community hospital, retired early after more than 30 years in hospital administration. In retirement, he enjoys serving on several nonprofit boards, exploring walking paths with his wife Susan, and visiting their six grandchildren. A little-known fact: In May 1994, Howard was featured—along with five others—on the cover of Kiplinger’s Personal Finance for an article titled “Secrets of My Investment Success.” Check out his previous articles.The post Lessons Unlearned appeared first on HumbleDollar.
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