Where Did My Money Go?

If you invested in the stock market during the past few years you probably feel like Howard Beale in the 1976 film Network when he says: “I’m mad as hell, and I’m not going to take it any more.” You’re mad because your broker or financial planner told you to buy Enron or Washington Mutual or some computer stock set to double in price because they were making huge profits. You’re mad because you later lost your money when the profits turned out to be nothing more than a classic case of cooking the books. You’re mad because the rush into mortgage debt was said to be as safe as cash and turned out to be almost worthless. And you’re mad because analysts on Wall Street made millions of dollars while they told investors to buy the stocks they privately ridiculed. All the while you were glued to the doom and gloom each day as the stocks and funds continued to slide. You probably felt alone, flying without a safety net. Like a caller on the air told me, “the stock market shock feels like a guy in a bath tub holding a toaster – and in this plunging market no one knows when to let go!” During this period you may also have stuck you head under the covers. And, like many buy-and-hold investors your investment statements have been tucked into a file box unopened. Now, as we face 2009, you can buy a share of Citigroup – the nation’s largest bank – that sold for $55 at the beginning of 2007 for $2.50. ATM fees can run that much. Or, for the price of a share of General Motors stock, you can buy a spark plug. Or for less than the price of a toaster you can buy a share of General Electric stock. You probably no longer feel like a bull. You may, in fact, have become an ostrich. What the recent stock market meltdown has once again told us is that a sick in the sand approach to investing is guaranteed to lose most of your past gains. In fact, the Ostrich effect is the reason most people sit on their hands and end up with only a modest retirement account. Everyone wants to do something, but fear erupts and rational thoughts go out the window. But is fear and denial the best way to manage your financial future? Not if you want to build a retirement nest egg for your retirement years. In fact, this book is about ways to encourage you to make a commitment to change the way you invest in the future. Like most investors, in this prolonged period of a crashing and soaring stock market, you probably avoided making any changes in the way you manage money. Instead, you’re waiting for the stocks or mutual funds to regain their value. History tells us, however, when you stand pat things could get worse and they usually do. As you survey the smoking wreckage of your IRA and 401(k), you probably wonder: What should I do now? The answer is to remember that most of the people frozen in fear and standing pat didn’t realize how their funds were hammered over the preceding three and five years. Take some of the largest stock funds, like the $28.6 billion Magellan fund. Buy-and-hold investors lost 46 percent of their nest egg for the year ending in October 2008, and for the past three years the fund lost 26 percent. Or take the big Value fund, down almost 41 percent for this same period and down 24 percent over the past three years. Here’s why: The secret to prosperity is your ability and desire to adopt changes in the way you manage your money. But if the market turmoil hasn’t frightened you, if you’re not ready to take charge of your own investments, then I want to share some of my experience in investing. The secret of building a nest egg today is making money in an up market and avoid losing that same money in a down market. Time magazine’s January 28, 2002, issue told investors: “With so many choices and no one to trust in today’s world, you’re on your own, baby.” The article asked: “Can I count on my broker? Who’s looking after my 401(K)?” Time concluded that the old safety nets are gone. And it really is true: You’re on your own baby! But if you can change what you believe, you can change what you do. As a result, the first thing you need to believe is that like Time magazine you’re on your own and you can successfully management your money. I’m not going to claim to know everything about investing – I only know what has worked for me (and what hasn’t) over the years. A wise man once said, “If you want to know how you feel about someone, talk about their youth.” So let me tell you a little about mine. I was born in Omaha, Nebraska (along with Warren Buffett) and grew up in a household that today would be called today economically disadvantaged. I didn’t know that at the time, but I did know since my family did not own a car, that if I wanted to go someplace I walked. And when I went to a birthday party I had to bring a gift. My mom usually bought the gift, but one day she gave me a dollar to buy one. “What can I buy?” I asked. She said, “Buy whatever you’d like, I’m sure Johnny will like it, too.” I went to the store and found just what I’d always wanted. All I had to do was convince my mom to let me keep it. I tried the ploy that Johnny might not like it and maybe we should get another gift. Mom didn’t buy that. Then I said it had batteries and maybe we should open the’ package to make sure they were still good. Mom said we’d trust the batteries. I even tried to get sick the day of the birthday party in the hope that Mom would forget about the gift. Do you know what it’s like to give a birthday gift that you’ve always wanted to someone else? That’s the whole deal with birthday parties, except I never forgot that day and I vowed that someday I’d learn how to make enough money in the stock market to buy the things I wanted. Later in life my family moved to a small farming town of maybe 800 people in California. I learned my first basic money management lessons in high school when I visited my dad, who was an accountant at a farm machinery store. I can still remember pulling five-cent Cokes from a tub of cold water and talking with the farmers. They wore bib overalls and talked about the new tractors, the hay rakes, and about money. At first appearance these farmers didn’t appear to be sophisticated money managers, but they always, drove big Cadillac’s and knew the value of a dollar saved. When I went to the university I discovered that business professors never talked to the farmers, never drove Cadillacs, and saved only a few dollars a month instead of creating investment portfolios. Maybe that’s why none of them taught courses on getting rich. I learned how to accomplish that from the farmers. What I’ve tried to incorporate in this book is the difference between people who actively manage their money and those who don’t. Those who make money in up markets and don’t lose the same money in down markets. The importance of this plan became clear, even to those who never look at their mutual fund statements, when the stock market wiped out 40, even 50 percent of their retirement nest egg in 2008. I gave early pre-publication copies of this book to my employees and to those who listened to my radio show because I was eager to explain ways to bring success in their financial lives and, for the first time, imagine themselves managing their own money. Money is often the soul of our well-being. We pursue it each workday because we believe it will make us happy. But if we get it and then lose it, we can face a traumatic future. If we get it, keep it and make it grow, it can lead us to a full and rewarding life with the people we love. Over the years I’ve learned that the most important things you can do in life are to make yourself happy, to share your love and understanding with your family, and to take each day one day at a time. After all, your trip to financial success should be as much fun as arriving at the destination. What