When I was in the third grade (maybe 8 years old) we did a project where we partnered with students from the fifth grade (around 11 years old) to learn about the stock market. My team consisted of me, a friend in my grade, and two fifth graders who were there to mentor us. Each team was given an imaginary $10,000 to invest in the stock market and the team who ended the project with the highest value would win. The project was loosely based around a contest our local paper put on, so there was the potential of real prizes for the winners!
Each team worked on their own investment strategy – some choosing to diversify and buy multiple stocks in case they picked a dud or two, while others chose blue chip stocks that they thought would provide stable growth. Our team went with door number three – we put every penny we had into a start up video game maker called 3DO. It had recently gone public and its consoles offered up performance that couldn’t be beaten by the mainstream (Nintendo, Sega, etc) competition.
I don’t remember the specifics of how long the project/contest lasted, but a couple of weeks went by and our strategy was paying off – we ended the week as one of the top teams in the area! Things stayed roughly the same until some bad news came out about our company. Again, this was 20ish years ago, so my memory has faded, but we went from being one of the top teams to being one of the bottom teams almost overnight. Unfortunately, our inexperience caused us to hold onto the stock the entire way down, assuming that it would go up again. It didn’t – at least not before the end of the project.
While I learned a lot from the project (don’t put all your eggs in one basket, think about risk, start ups can be risky, etc), the most profound takeaway was that it caused me to fall in love with investing and the stock market.
The Later Investments
When I was in high school I bought shares of Best Buy (BBY), Intel (INTC), and Microsoft (MSFT). I ended up making modest gains with these investments, but nothing spectacular. I was just lucky that none of these investments tanked!For a few years during my college years I didn’t do much meaningful investing. I still held small positions in some of my earlier purchases, but I wasn’t actively making new trades.
Once I landed a “grownup” job after college, I immediately started investing in the company 401(k) plan. I wasn’t making a lot to start, so I wasn’t putting a lot of money in each month – but it was better than nothing. I soon started a Roth IRA and started contributing the maximum allowed each year. During 2011/2012 I did a little more dabbling in individual stocks. I bought a few shares in two companies I thought were severely undervalued. Well, I ended up losing over 80% of my money in the first company when it declared bankruptcy less than two months later…crap!!! I fared better with my second pick – it went up about 40% before I sold it (of course, it’s almost doubled since I sold it… but who’s counting???), but it didn’t offset all the losses from my previous bad pick.
Over time, and through good investing decisions and bad, the main theme that has stuck with me is this – as long as I keep putting money into the stock market, I will be fine. I have continually refined that, and now I’m staying away from single stocks and only investing in mutual funds, but the theory remains – being invested in stocks is a good thing. After all, according to the Census Bureau (via Wikipedia) the US stock market has averaged returns in excess of 10% over the last 60 years! I mean, even if returns aren’t as great as that over the next 60 years, I should still do pretty well. Over the last year my Roth IRA / Rollover IRA (all in Vanguard) have averaged 11.1%, and 8.6% over the last 3 years. Now, that may not be awesome, but it definitely doesn’t suck (in my mind). In addition, I’ve got some uninvested cash in there that’s screwing up those return numbers, so the real numbers should be higher!
Knowing what I know, and have known since such a young age, it comes as a huge surprise when I hear about people who do not invest money in the stock market. I assumed that most people would be investing as much as possible in the stock market, lured by the 10% returns and low-maintenance investing style. Well, according to this CNN article I read, about half of all adult Americans don’t own any stocks (either individually, through a mutual fund, through work, etc)!@@!@!@!@ I mean, this is crazy! If you take a look at the article, you can see that since 2007, there has been a significant decline in the percentage of people invested in the market. Of course, people probably saw the markets sink and then took their money out at or near the bottom. Now that the stock market has risen to record highs, they will have missed out on all those gains!
The (Potential) Explanation
It would be one thing if people were saving the money, or investing it another way, but I think most people who aren’t investing in stocks are just spending the money. I know that at least some of my friends are probably not making solid investment choices, and these are people with the education and background to be able to. I don’t honestly know how to fix this problem, but I think that awareness is the first step. Just knowing that you’re missing out on potential 10%+ gains every year should kick most people into gear! I know that for Mrs AB and I, if we have any hope of financial independence and early retirement, then the stock market has to be our ally. We are putting away around $20k/year in retirement accounts that are all invested in various stock mutual funds.
I can’t imagine not investing heavily in the stock market, but as you can see – I’ve got 20+ years of history leading me to this investing decision. What are your thoughts on investing? Do you invest in single stocks? Mutual funds? Company stock? Or do you prefer something else, like real estate? Let me know in the comments, and if you have ideas for how to get the other 50% of America investing, then I’d love to hear it!