When the phone rang, I was making cookies and cleaning up. As I juggled dish towels, the phone cord, and running kids, the voice on the other end told me that she had been a client of mine more than a year ago. She then told me about her family's finances. There was a lot of good news about how they were out of debt and only had their house to pay off. They were also working steadily to save more money.
I was telling her and her husband how hard they worked and how proud I was of them when she told me why she was calling. They had just heard about a "wonderful" opportunity to invest, and they wanted to know what I thought about the company and the situation. Usually, I hate it when people tell me what to do with MY money. First of all, I'm not a trained financial expert, so I always leave these kinds of decisions up to those who are. Second, I don't know all of your hopes, dreams, and goals for your money, so why should I tell you what to do with YOUR money?
But because I had worked with this family before as a coach, I listened politely as she told me in a hurry about this amazing chance to make money and how they were seriously thinking about investing the $5,000 they had saved for over a year with this one company. Then I asked in a calm voice, "Okay, but have you and your husband put as much as you can into your IRAs this year?" On the other end, there was a long pause before she said, "Um. No." "Well, before I put any money into an investment, I would make sure I had put as much as I could into all the tax-advantaged accounts the government lets us have." I then told her to talk to her accountant about what kinds of retirement accounts they could get and how much they could put in. I also told her that they should put money into those accounts first before putting all of their money into this other organisation.
My cheap friend, this is the point. I know that IRAs, 401ks, and 403bs aren't sexy, bold, or exciting, but they are great, steady ways to invest in your future. Start with what works before you move on to investments with more risk. Choose what's CLEAR! Are you doing what should be done? Do you put money into accounts that help you save on taxes? If you don't even have a retirement account, make opening one this year your first investment goal. If you're married, make sure that both of your names are on it. Don't use your hard-earned money to make a quick buck. Start with the investments that are safer and less exciting. Once you've spent as much as you can on those, you can use the money you have left over to invest in other things. But before you do anything, you'll talk to your accountant or financial planner about this, right?
I was reading an article in "Money" magazine that gave me more proof that not all investment strategies are exciting (January 2007). It had an interview with Charles Schwab, a financial planner who is worth a lot of money. He was asked a simple question: "What one piece of financial advice would you give to someone who is just starting out?"
Mr. Schwab answered, "Buy ETFs and index funds. That might not seem like enough for a 25-year-old, but it's the best thing to do. Focus most of your energy on your job and learn how to talk to people. I think that people who are really successful are those who can figure out how to make other people feel at ease."
Chuck, thanks!
