This summer I reached my 20th anniversary of moving to San Francisco, so it was perfect timing when a representative from Personal Capital, my favorite, FREE, online financial software company, contacted me and asked if I would write about what I did in my 20s that set myself on track to a sustainable financial future. Interesting question Personal Capital, thanks for asking!
Picture this: 1995, Clinton was president, Oasis with the biggest freaking deal, O.J. Simpson is found innocent of murder, and I arrived from the mid-west in San Francisco one week after graduating from college with three suitcases and a brand new dial-up modem.
This was just moments before anyone realized something peculiar was happening in the Bay Area. Steve Jobs was running Pixar, and Silicon Valley wasn’t really a thing yet. It was just as the dot-com bubble was beginning to inflate, and over the next several years I saw the spectacularly funky San Francisco which I had been drawn to, gobbled up and spit out by the first tech wave in a rapid, and earthshaking boom and bust.
I started my career as a magazine illustrator and designer and worked for several of the ‘new economy’ magazines of the day covering the dot-com craze. From this vantage point, I was able to watch the bubble inflate from the inside. I did photoshoots with venture capitalists, petting their large standard poodles, and gazing into the deep ends of their glittering Atherton swimming pools. I dealt with Start-Up Divas, Programmer Wunderkind with dubious personal hygiene standards and enormous egos, and countless on-paper-for-the-moment multi-millionaires.
Outside of work I saw friends old and young from every imaginable background drop everything to become day traders — because at the time it seemed like literally ‘anyone’ could hit it big with tech stocks.
I vividly remember my surprise at a friend’s decision to dump her highly-coveted non-profit arts job because she was giving herself one year to make a million dollars, by taking an opening as an executive assistant at a pre-IPO start-up.
At the top of the market ‘one million’ had become an inconsequential sum of money for so many. I saw 25-year olds buying horses and expensive cars. This wave of new money culture swallowed everything, just as I was getting my footing in the job market, and developing my personal understanding of the value of work… But somehow, surrounded on all sides by easy money lunacy I kept doing what I was doing — working hard, learning the craft of design and practicing my drawing while making a regular salary. And in the middle of this frenzy it was hard not to feel like the only idiot who hadn’t accidentally made a huge pile of money doing nothing much at all.
Then the crash came — and it all fell apart.
In an instant everyone in San Francisco was laid off all at once. There were several major magazines in the area covering the tech boom, and I watch as they toppled one by one. Just before I was added to the deepening well of the newly unemployed, my magazine sported a cover story titled “The Return of the Crappy Job”. It forecast the bleak future of the once in-the-right-place-at-the-right-time dizzyingly-rich having to go back to regular life, without huge signing bonus’, stock options, and ridiculous salaries. Many of the people who were millionaires-on-paper not only had lost it all, but were facing huge tax bills they couldn’t pay because of recognized, but not retained momentary gains in stock-options. And so many of the people who had been smugly raking it in, now had to choke on their pride and take jobs for just a fraction of what they were used to. The day traders lost their shirts, and their horses, and I rarely spotted 25-year-olds driving Porsches anymore.
And that’s when I realized I had done something right. I was just as unemployed as everyone else, but I had spent years learning a trade, gaining useful, practical experience, and I had never distorted my self-worth based on an over-inflated salary. I happily dusted myself off and continued on, without the dark cloud of a job in my 20s that I’d never top. The promise of insane riches really damaged a lot of people, so that when the promise evaporated it was really hard for some to bounce back.
Avoiding a big head, and developing a good work ethic were huge triumphs for my 20s, but there were a few other things I accidentally did right that I am so grateful for now.
I signed up for my company’s 401k
On the first day of my first job at 22, my new supervisor sat me down with some paper work and said “There’s a cool new thing the company just started offering called a 401k, where you can put money away for retirement and invest it in the stock market.” I vividly remember him showing me a chart, which made the preposterous claim that if I saved $2000 every year for the first 7 years of my working life, I’d have enough money to retire with at age 65. And though this was complete fantasy, it got me started. When I left that job I enrolled in the 401k at my next job, and when I later found myself freelancing I opened a Roth IRA and contributed to that instead.
I’ve never had particularly high paying positions, so the annual contributions were quite low, but the compounding power of 43 years on that first $2000 will be significant by the time I reach 65. And for that I will be eternally grateful to have been pointed in the right direction.
I was a reasonable spender
The other thing I did right in my 20s was to live below my means. I always lived with roommates, never carried a balance on my credit card, and saved for big purchase before making them. Why didn’t I fall into the typical traps of overspending in youth? I have no idea, but it had to have something to do with my parents’ example (thanks Mom and Doug!). And whatever the reason, I’m grateful to have come out of my 20s without dragging big bills and high-interest debt behind me.
I lost some money in the stock market — but stuck with it.
I didn’t come out of the 2001 crash completely unscathed. Whipped up in the frenzy all around me, I asked a financial analyst acquaintance that I ran into at a party, ‘what stock I should buy?’ The answer I got was Network Appliance. Not having any idea what a network appliance was, I immediately went out and bought some. The stock doubled, tripled, and maybe even reached higher. I thought I was a genius, I thought investing was easy — and then I saw (in what seemed like 15 minutes) the value of Network Appliance sink to almost zero. Looking up the stock value today, 15 years after the crash, Network Appliance is bobbing around 1/5 the value it reached at it’s peak in 2000. As painful as it was to have been on that roller coaster, I now see that experience as a relatively cheap, but extremely valuable lesson that taught me several key rules that I continue to follow today.
Now I have a plan to go with my investments. That’s right, a written document that I created which outlines my goals and timeline. I geek out on these sorts of things, because the act of writing for me actually clarifies my purpose. However, if crafting long-form prose about your investments doesn’t inspire you, it really doesn’t have to be complicated. What you want is a simple explanation of what your goals for investing are, your risk tolerance, your timeline, and what your overall target asset allocation is. This not only helps you put your ducks in a row to get started, but it’s something you can check in on and revise throughout your life as an investor. Your goals for your money will likely change over time, so it’s important to have a reminder of why you chose to do what you did, and be able to confirm that you’re still on track, or make changes if necessary.
My Network Appliance investment went south because I took someone else’s short-term stock tip with a high-risk profile and a mind-set for day trading, and wagered my long-term investment money on it as a first foray into the market. How naive is that? In a 5-minute conversation with an acquaintance I wasn’t able to communicate why I wanted in invest in the first place, and I was given advice that was tossed off with no qualifications about risk or diversification. I can recognize this now as a quintessential recipe for disaster.
I know what I am invested in. It’s so important to have a good understanding of what you’ve bought so you know when the business climate has turned against you, or whether a dip in the market is something to just shrug off. And if being that involved sounds like too much for you to sustain — you should only invest in low-cost, well diversified index funds.
Now I invest in only a very few individual stocks that I have held for many years, and have backed those up many times over with the volatility-smoothing diversification of Index Funds. With everything else that is going on in my life I have very little time and interest to follow what’s happening with individual corporations, So I’ve limited my individual stock purchases to between 4 and 6 companies. This has given my portfolio a boost from a few well researched, high performing stocks, but alongside that, I have the confidence and convenience of being hands-off with the bulk of my assets.
Now, if someone at a cocktail party asked me what stock should I buy?, instead of tossing out today’s version of Network Appliance, I’d ask what their goals for investing are, what time frame they’re working with, what other investments they hold, if they have money saved in an emergency fund, how many months of living expenses does that emergency fund represent, and finally what is their tolerance for risk… And that’s really just the beginning.
Without knowing it, making a few positive moves in my 20s put me in a good position to achieve my long-term financial goals. Though my mistakes were numerous: I spent too much money in restaurants and on take-out (oh the thousands of dollars I wasted!), and I paid far too much in bank fees (damn you convenience store ATMs!), I still lived below my means, and began investing early on. Once I finally started paying attention in my 30s I was grateful to realize what I had done.
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