Comments on: Making Financial Mistakes Can be Good Too

By: Frugal Babe

Frugal Babe — Sun, 21 Feb 2010 17:44:56 +0000

I know I’m a lot more driven to max out our retirement accounts these days, to “catch up” from the early days of having our own business, when we weren’t contributing much of anything. I agree that learning from mistakes is a great motivator.

By: Christina

Christina — Fri, 19 Feb 2010 07:26:36 +0000

Very much agree with you…when you don’t learn from it becomes a vicious cycle….

By: Cd Phi

Cd Phi — Thu, 18 Feb 2010 21:28:32 +0000

I know exactly what you mean. It’s like playing catch up to keep up. Ultimately, given the choice I’d just rather be ahead but if I were to make a financial mistake, I sure hope I’d at least learn from it.

By: Robert

Robert — Thu, 18 Feb 2010 18:22:12 +0000

Speaking of mistakes, you made one in the title.

But yes, making mistakes is good when it comes to finances. The burn you feel after wasting some hard-earned dough sticks with you for years….urging you to make wiser decisions in the future. You can learn all you want, but there’s no substitute for experience.

By: MoneyNing

MoneyNing — Thu, 18 Feb 2010 18:07:27 +0000

It’s true that the compound interest argument doesn’t take into account the volatility of returns, but I also think that the stock market has its place in everybody’s portfolio.

Dividends and more favorable tax treatments versus other types of investments all play into more money in our pockets. Sure, it’s not 10% a year consistent returns that people talk about, but you still come out ahead.

The key is to keep investing, and to keep it in a diversified, ETF/Index Fund portfolio unless you have a ton of time researching about individual stocks.

By: Alcoholic Millionaire

Alcoholic Millionaire — Thu, 18 Feb 2010 17:16:00 +0000

(Carl)
While the overall market was flat as a whole for the last 10 years this certainly does not mean that as an individual your portfolio would have been flat. When you factor in reinvested dividends than you more than made a profit over the past 10 years including management fees. Now keep in mind that the 10 year period ending march 2009 was one of the worst 10 year periods in history.
…. Further, even if you didn’t make any money over a 10 year period what is more important is that you would be developing the long term skills necessary to succeed. It takes great discipline and determination to invest steadily over long periods of time. Even if you didn’t loose out on stock gains you did in some respect loose out on the experience of investing.
All of that aside you were in graduate school during your 20′s. So instead of perhaps fully funding your roth ira you were investing in yourself which will yield many many returns down the road. I don’t think you were incorrect in pursuing school as now you will likely have the skills to secure a good paying job which you can use to save and invest more at a faster rate.

By: Carl Grace

Carl Grace — Thu, 18 Feb 2010 16:06:30 +0000

I think not investing in my 20s wasn’t that bad a mistake (I’m 34 now). Besides the fact that I was in graduate school for most of my 20s, the last decade was pretty much a lost decade for stocks. I think many personal finance books and blogs perpetuate what I call “The Myth of Compounded Interest”. The key fallacy is that people always say you should invest early to enjoy the benefits of compounded interest. This is only true in cases of a bank account or CD investment. Stocks DO NOT COMPOUND because they can rise and fall.

If you look at the S&P500, it is approximately at the same level that it was 12 years ago at the beginning of 1998. Using any of the personal finance formulas would give annual gains of 5% to 8% or so per year when estimating what a person *could* have made if he or she invested young. In fact, there was NO gain in the stock market as a whole. Also, what little earnings you would make from dividends are largely eaten by management fees and taxes.

If people really want compounded interest they must invest in bank accounts, CDs or government bonds. The downside is the interest rate is about 2% at best. So the models we use to see how we will all be rich and happy in retirement are deeply, deeply flawed.

My point is that since we can’t control anything, we must let it go, save as much as we can, but enjoy our lives, hobbies, families and friends. Don’t postpone live today for a future that may not be what you expect. Stocks are a little like Real Estate in that the people who REALLY benefit the most are those involved in buying and selling.

Carl

By: Lakita (PFJourney)

Lakita (PFJourney) — Thu, 18 Feb 2010 14:48:23 +0000

The absolute worst mistakes are the ones you don’t learn from.