Guest blog by Natalie Pace
Author of The ABCs of Money
I Went from Copper Miner's daughter to Golden Girl, from divorced and desperate to dream come true. You can do it too!
Bucked off (the Bull) and overwhelmed!
When I got hit with the sledgehammer of divorce and the challenges of providing a home for my son, being the breadwinner and the nanny and the chauffeur, et al., I thought, "Teaching! I'll be home for my kid after school, and I'll make decent money." How naīve I was. When you consider teachers don't get paid to be at school early, or to stay late, or to grade papers into the middle of the night, my babysitter was earning more per hour than I was.
Within two years of teaching, I was so far behind on my bills that the county was threatening to put a lien on my one asset -- my condominium -- to collect the property taxes I owed. My credit card debt had blossomed into a nuclear waste dump that I stored on the top of my refrigerator - so toxic that it made your eyes bleed just to pass by. Needless to say, I was an emotional wreck, and I could only approach the nuclear fallout of which bills to pay, which companies to plead with and which to completely ignore on the nights when my son went to his father's. How could I have let things get to this point? What kind of world expected me to work all day just to provide basic necessities and then criticized me for having a latchkey kid who turned to drugs or video games for comfort?
When I stopped my whining and complaining and blaming others and gnashing of teeth, and focused on possible solutions, they seemed relatively simple. I needed to earn more and spend less.
Within a few weeks, I landed an executive-level position at a nationwide phone company. It was a small office owned by a friend of mine. Initially, the position was on a trial basis, but within a few months, under my operational direction, the company was out of the red and into the black. The salary was double what I earned as a teacher, and the hours, though longer on paper, were much less in reality.
At the same time, the wonder of investment cycles began to work in my favor. In 1998, at the time of my divorce, I was locked into that home that I couldn't afford and couldn't sell. It was only a two bedroom, so I couldn't even rent out a room to help make up the difference.
Burned for nine years by my first major real estate investment, I turned my eye to Wall Street. You could have thrown a dart at a wall full of stocks and found a winner in 1999, and cocktail parties were abuzz with people touting their gains.
In August of 2000, I met with a certified financial planner. I will call him, Steven Snappy. He had been referred by my bank and had a set of impressive initials after his name -- NASD, SIPC, and so on, which lent him credibility. I sat down, feeling as though I was in good hands. He served up a pie chart telling me that if I tossed my real estate profits into a bowl of mutual funds, I'd churn up a minimum of 12 to 15 percent return. If, that is, I also dumped in an additional $500 a month, which was the minimum amount I could commit to.
"12 to 15 percent," he said, behind a cupped hand, "is very conservative." (Never mind the fact that I'd have to give up eating to afford the $500 per month.) His mutual fund brochures which he proposed to put all of my money into, which I still have, boasted up to 43 percent returns on funds anchored by AOL, Global Crossing, and Enron, to name three. These brochures quoted returns from March 2000, at the stock market high, something Mr. Snappy neglected to tell me, even though our meeting occurred after Nasdaq had already tumbled about 40 percent, dragging those gains into the gutter.
Snappy became impatient with my questions. It was perfectly easy to see from his charts that the mutual funds he was recommending were amazing, he insisted. By diversifying, I would be protected from the fluctuations of any one sector. How hard was it to see this? Besides, he was making a huge, unauthorized exception for me by lowering the minimum buy-in. If my money sat in savings, that was less than inflation. We were talking ten times gains in upside potential. Just what was it I didn't understand? (If you ever hear someone talking to you like this, remember s/he is a salesperson, not an investment genius, and run.)
There I was -- a professional woman in sharp new clothes with a pen poised to sign a slew of documents I didn't believe in because I wanted some sleazy salesperson to approve of me. Think fast, Natalie.
I left that day without signing, using the lame excuse that I was late for work. Snappy was exasperated with me but that didn't keep him from continually calling and nagging me to sign the documents. I was too busy researching P/Es, PEGs, Debt/Equity ratios, and the 10-Ks of my favorite companies to spend time offering him more ridiculous excuses. (Thank God for the ignore option on my cell phone!)
By the end of 2000, the markets tanked and the recession deepened. So instead of throwing away my life savings on Snappy's "big winners" -- Enron, Global Crossing and AOL -- my investment chugged along at 4 percent interest in a certificate of deposit.
Confidence: My real Cash Cow!
When I did invest in the stock market in August of 2001, I tripled my money in just four short months -- without shorting. I can remember only a handful of times being that elated over money -- when I bought my first car, when I purchased my first home, and when I tripled my money in the stock market. It's better than winning the lottery!
Since then, I've had extraordinary gains in the markets, including having 70% winners in my monthly stock report cards in 2008 -- another year when people lost a ton of money. And I was able to found and become the majority shareholder in my own financial news company -- all of which led to my new book, Put Your Money Where Your Heart Is.
I'm thrilled I didn't invest my money with Steven Snappy, but the most important gain I received that year was confidence. When you have nagging doubts, remember: it's your heart begging for more information. Trust that your uneasy spirit knows something. By prospecting into the heart and soul of your concerns and educating yourself to answer those concerns intelligently, you will start on your path to financial wisdom. Knowledge and information are better strategies for decision-making than blind trust in a stockbroker/salesperson, or anyone for that matter.