Financial Confessions: Lessons from My 20 Years of Investing & Financial Mistakes

5 Key Points

1. Financial Planning Mistakes: Real-world examples of common investing errors, like cashing out a 401(k) and impulsive purchases.
2. Individual Stock Investing Pitfalls: The dangers of overconfidence and trying to beat the market through individual stock picks.
3. Long-Term Investment Strategies: The importance of understanding the time value of money and long-term financial planning.
4. Financial Education: Learning from financial missteps and pursuing professional certifications (CFP, CPA) to gain expertise.
5. Purpose Built Financial Services: A solution for avoiding financial pitfalls through personalized guidance and expert financial planning.

Young Know It All

Welcome aboard, my financial rollercoaster—seatbelts are optional. I started out fresh-faced and eager right out of college, with diplomas in Economics and Finance under my arm from the University of Delaware. The year was 1999, the perfect time to jump into tech, just before the bubble popped and reshaped what I thought I knew about economics.

My first position was in a tech company's internal audit department. At night, I was back in the classroom pursuing a Master's degree in Finance. I was a glutton for punishment, but I also understood that I would never have fewer responsibilities than I did then. That first year, I had so little money. Most of my extra money went towards student loan payments, with a little kept aside to go out on the weekends to places in the Philadelphia area with the best specials (Thank you, Saturday nights at Roosevelt's!). 

The only two solid financial decisions I remember from that time period were making contributions to the company 401K up to the match and maximizing contributions to my Employee Stock Purchase Plan (ESPP), securing a guaranteed 15% return by leveraging stock discounts. The ESPP was limited to something like $1,500 of purchases a quarter, and I sold immediately when allowed and basically netted the 15% discount. 

Fast-forward three years: the Dotcom Crash was in the rearview mirror, but the economy was still in the middle of a three-year stock market decline. For those who forget or didn't experience it, S&P500 returns in 2000 through 2002 were -9.0%, -11.8%, and 21.9%, respectively. It was not a very good time for many companies, and the tech company I was at was definitely in the slow-to-recover camp. I was offered a much higher-paying job, so I took this opportunity to leave the tech sector. 

Facepalm Moment #1

Amidst the job transition, I made financial misstep number one (at least that I can remember) with my 401K. Rather than opting to roll it over, I withdrew the funds. The amount was small, a sum just shy of $3,000, because I was only contributing up to the match since I didn't have that much money then. 

While some of this 401K money might have found its way into the purchase of my first home, which I later turned into a rental property, this decision cost me in the long run. What would the 401K amount be worth if I invested that at the depressed 2002 amounts? There is no need to do the math; I did, and it would have been worth roughly $20,275 as of May 2024. 

The potential growth that could have accrued had I left the funds to mature in the 401K was a lost opportunity, underscoring a valuable lesson in the importance of considering long-term financial implications over immediate convenience.

Facepalm Moment #2

Despite my financially focused academic foundation, I had even finished my Masters in Finance by now; my initial forays into the world of investing were marked by a blend of naïve enthusiasm and hard-learned lessons. I fell into the class trap of overconfidence with my education and thought I could beat the market trading individual stocks. I had early success, such as investing in Marvel before comic book movies were huge and investing in REITs. However, for every victory celebrated, several investments slipped into oblivance, including an ill-timed investment in WorldCom (who didn't believe it would come back?!?!). Here's something funny about investing: it's like only remembering the best parts of a bad movie. You forget the losses and overplay the wins in your head. When you step back and look at your total returns, you realize you're not beating the index year-over-year, no matter how many finance books we devour. Putting a number on the lost returns associated with actively trading is hard to quantify, but they are real. 

And yes, I had already read my favorite book in investing, A Random Walk Down Wall Street by Burton Malkiel. Still, like many of my life lessons, I needed to experience the hard way to truly grasp the wisdom. 

Facepalm Moment #3

Fast forward several years, and I was just wrapping up my first year as Chief Financial Officer. And what a year it was! I started in March 2008, right as investment bank Bear Stearns collapsed and was acquired by JPMorgan Chase with government assistance. I spent the first year turning around the company's finance department, uncovering financial issue after issue while the economy fell apart.

Still, I fared better than most. I had yet to receive any real bonuses, as the economy was in shambles, but I had kept my job, and it was a significant salary increase from my pre-CFO days. So, what did I do with this newfound wealth? Invest in the rock-bottom stock market?

Nope. I bought a boat. But I can now confirm the old saying that the two happiest days in a boat owner's life are the day they buy it and the day they sell it is true.

I didn't want to do the math on this one, but I did it for you, dear readers. The roughly $50,000 used to purchase the boat (not counting maintenance and slip fees) would be worth $289,000 in 2024. Ouch.  

Lessons Learned

Every win and loss was a lesson, and trust me, I've had my share of both. These weren't just financial blips; they were real-life classes in what to do and what not to do with your money. They taught me the value of balancing risk, understanding the psychological traps of investing, and the importance of long-term planning over short-term gratification while still understanding that you only live one life. 

So, after two decades of ups and downs in corporate finance, gaining my CPA and CFP, here I am, the founder of Purpose Built Financial Services. I started this company to help professionals like you avoid the financial missteps I stumbled through. Think of me as that friend who's always got a story but also some solid advice because they've lived through it.

Ready to rethink your financial strategy? Let's turn those lessons into actionable plans that build a stable, prosperous future. Your journey to financial freedom starts here, and it's going to be one heck of a ride!

Your financial well-being is too important to leave to chance. Choose wisely.

FAQ

Q: What are some common financial mistakes to avoid?

A: Cashing out retirement accounts, impulsive purchases, and trying to time the market are just a few examples.

Q: How can I avoid making financial mistakes?

A: Seek professional financial advice, create a financial plan, and focus on long-term investment strategies.

Q: What services does Purpose Built Financial Services offer to help me with my financial goals?

A: We offer comprehensive financial planning services, including investment management, retirement planning, tax optimization, tax preparation, and estate planning.

Q: What qualifications do you have to offer financial advice?

A: I have over 20 years of experience as a corporate finance executive, a Master's in Finance, and I'm a Certified Professional Accountant (CPA) and Certified Financial Planner (CFP).

Q: How can I schedule a consultation with Purpose Built Financial Services?

A: You can visit our website or contact us directly to schedule a free consultation.

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About the Author

Sean Lovison, CPA, CFP®, is a flat fee-only financial planner based in Moorestown, New Jersey, serving clients virtually nationwide. After spending 14 years as a corporate chief financial officer (CFO), receiving and designing compensation plans, he decided to help others navigate their plans.

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