I was about 21 years old when I thought it was time to start investing. My father had instilled in me that it was a wise thing to do and the earlier you started the better. This is all thanks to the miracle of compounding as I mentioned a bit in my last post.
I was fortunate enough to receive a small gift from a family member to help kick-start this process and get the ball rolling. Sadly I think I spent most of this money on tuition for my masters, the copious quantity of beer and a computer.
Seeing as I was so focused on my studies with my artistic ideals intact (that I would be able to earn a reasonable living from my art) I thought that a financial advisor was the right way to go. Some mutual funds were purchased and things chugged along doing almost nothing for many years as my career grew, stagnated and then retreated into a slow plod.
At this point in my life I had a small amount of debt. Much of this was thanks to the fact that I did much of my schooling outside of Canada and thus didn't have any credit history, so nobody would even give me a credit card when I returned to Canada since they didn't know I even existed. I tried to finance a vehicle and I had proof of sustainable income but I was declined as I had no history of any kind!
But, I digress... My mutual fund holdings did essentially nothing for several years. The advisor whom I liked got a better job with a different company and my account advisement was transferred to another agent. His recommendations would have been perfect if I were a 75 year old pensioner and drawing on my pittance for the next few years until I ceased to exist. But sadly I was 25 at the time and still hungering for fortune and glory and of course world domination through financial success. Eventually this advisor saw the folly of his ways and transferred my account management to a guy who is on the ball and I actually like. His ideas are straightforward and he's willing to listen to what I'm thinking and find products that fulfil that request. Once I started participating in my financial future rather than leaving it in the hands of an advisor, my account started to grow.
Sadly, the financial explosion of 2008 happened and my net worth plummeted to half. This while looking scary is what they call a "paper loss". This means you only lose money if you sell. Recovery is inevitable and my holdings recovered 100% of their previous value in about 13 months.
During the amazing plunge the stock market made during late 2008 I got the brilliant idea to start trying my own hand with a few bucks in the market to see how well I could do with only a small investment of time. I was working a soul-crushing day job at this point in my life and was looking for any potential out I could find. (This job was the WORST decision of my life... I'm glad it's over.)
So at nearly the bottom of the market I made a few picks and within a few short weeks I had nearly doubled the money I had started with. (If only this rate of gain could have been sustainable! It's not... recovery has slowed to a nice and steady rate. This is by far much more reasonable.) It was at this point where I started to hunger for more information and actually started to properly research what I was thinking of purchasing.
Every time I looked into a mutual fund (with the exception of a small collection of funds my guy at the big bank picked WITH me) it all looked like it was a great thing to own... for the company that sells the units of the funds. Remember, mutual funds have management fees that come out of the earnings of the fund. If the fund doesn't make any money this year you're still on the hook for those fees! Plus many funds have "loads" which is not-so-clever term for fee! You pay to buy them, you pay to hold them and you pay to cash out. What could be better than that? (For the fund company!!!)
Some funds are of course better than others and many funds don't have commissions so you can make a regular purchase of $25. However, with the exception of the small collection I have, I don't think I'll every buy mutual funds again. They cost too much and don't get me enough return.
My humble opinion: Mutual funds are devices primarily for keeping mutual fund companies busy. They hire lots of people to research, analyse, bean-count and mull over what to do. This of course costs YOU money all while dangling a carrot on a stick promising potential gains.
How do you make this work for you? Easy! Buy stock of the companies that sell mutual fund units! That way you win no matter what! If the funds go up or down, the mutual fund company still collects fees from investors and then uses that money to pay staff, run the company and distribute to share holders.
Disclosure: I own (and have owned) and like the following companies that sell mutual funds:
AGF Management Limited (TSX:AGF.B) currently hold a small position
Sprott Asset Management Inc. (TSX:SII) sold in May 2010, will buy again
Next time: making the investing plunge
Disclamer: By reading this blog you waive your right to sue me for any reason whatsoever. The info you have gleaned/or stolen from me is entirely here for entertainment purposes only. If you learn something from me than I'm happy, but if you lose your shirt/house/life-savings/girlfriend then you can't hold me responsible. You also acknowledge that I'm just a small operator trying to hack out a living for myself and that my recommendations may win or they may lose. (And I have lost... but thankfully I've gained more than I've lost)