As I mentioned, I began investing soon after I started my first job as a physical therapist. I had started a Roth IRA with TD Ameritrade for no particular reason other than I had
heard of it before. I decided I would start investing $500 dollars per pay check or roughly $1000 per month with the goal to have it maxed out by the end of 2017. Again, I had only just started working in late may, so I felt this was a reasonable goal.
At the time of writing this in 2019 the current max on an IRA account is $6,000 per year if you are under 50 and $7,000 if you are over 50. At the time I was investing it was $500 less in each category.
I understood how to save and contribute to this account, but now the hard part for me was deciding what to invest in.
Becoming a Stock Expert
Naturally, I was going to become a stock expert. I spent the next month reading
blogs, and listening to podcasts about the hottest stocks. I even started a note on my phone of which stocks I was going to buy based on the “predictions” of random people on the internet. I should probably do a future post looking at how that list of stocks is doing now. I’m embarrassed to see how much money I likely would have lost trying to guess the market.
I began constructing my “portfolio” of some of these random stocks. To make matters worse, me being the frugal spender I am, thought I was going to only invest in cheaper stocks to try and predict what would be the next big thing.
I bought some of the big name players we all know, but most of my
portfolio consisted of $15 and under stocks that were going to explode any day now.
Trump says he is building a wall, I bought up and coming infrastructure company stocks. Canada plans to legalize marijuana, I bought cheap up start pot stocks. I was blindly throwing my money away.
Luck… I mean skill
To add fuel to this fire, my aunt who works in healthcare as well, told me about a up and coming pharmaceutical stock she had begun buying herself. It was around $3.50 per share. I told a friend about it, and we bought a bunch. A few months later that company was bought out by a big pharm company and they paid us out $10 for each stock. I made over $1,000 in just a couple months. Picking stocks was E-Z.
In reality, I was just lucky.
Thankfully I only had the $5,500 to invest and that $1,000 served as a nice
buffer for all the rest of the loser stocks I ended up choosing.
But the human brain is flawed and we like to only remember the winners. When in reality by the end of the year my percentage gains were only slightly above .5%.
Somewhere in my process of googling “hot stocks” every Monday night, I stumbled across JL Collins stock series which at the time was a fire hose on information for someone who was only ready for a slight drizzle from the faucet. So instead of reading his blog through it’s entirety, I bought his book a simple path to wealth.
This is where I learned about the true power of the mutual fund in a way that
was easy to digest and apply. This book is still one of my favorite books to loan or gift to give to my friends and family who won’t take the information from me.
Conclusion
Don’t fall into the trap like I did, thinking you have the time, resources, or intelligence to pick stocks like Warren Buffett. There is a much simpler way to invest that comes with significantly less risk: Mutual Funds.
Did anyone else fall victim to the trap of picking “winners”?
Feel free to comment below with any questions or if you have specific or personal questions feel free to contact me here!
