The homie Mark requested stories of lessons learned, and I’ve got enough to share that they prolly get a whole series unto themselves.
(A wise man once said: “You. Must. Learn.”)
So here’s one….
Long meandering backstory for context
For the first twenty-odd years of my life, I don’t think anyone said a word to me about investing, saving for retirement, the stock market, and so on. I had a sick deep fascination with rich people, but the way that they got rich, in my understanding, was by being what my grandfather, a child of the Depression, called “a wheeler-dealer.”
The archetypal wheeler-dealer, and the only rich person I came into contact with, was my mom’s cousin Gene, who I saw from afar at family gatherings once every few years. Nobody really seemed to love Gene, and there was an unspoken sense that he had gotten rich on the backs of old people and sick people and poor people (he had a stake in several not-fancy large complexes like the retirement center where he put up my grandparents in an apartment, a private for-profit hospital that I remember the aunts and uncles talking about in undertones because of some sleazy profiteering practices that I didn’t understand, and who knows what else), but to me he was a goddamn celebrity: he literally owned a DeLorean, okay?
Rich people, then, evidently got that way by buying and selling things until they had more and bigger things worth more and more money.
The buying and selling seemed to take care of itself. That part didn’t mean much to me: I had no interest in the mechanics of getting rich, I just wanted to be rich.
(It’s like when I first started writing: I didn’t actually want to write poems, I just wanted to have written them.)
Slowly getting to the point
Anyway, by the time I was a college dropout working in group homes and Special Ed classrooms, I had a) no savings and b) no idea what to do with savings if I had had it.
When I turned 21 my dad sent me a few thousand dollars that he’d been sitting on for me since my mom died when I was 13, some amount of Social Security survivors’ benefits. I kept it in cash on the top shelf of my closet (shakes head) in my apartment on SW 5th Avenue in Portland, and I spent it (mostly on stupid shit (shakes head again)) until it was gone.
Pretty sure it was around this time that I first heard someone I knew personally talk about the stock market. My guy Bernie was one of the bright lights of our crew in college: super-smart but wore it lightly, hardworking and hard-partying, chill when it was time to chill and intense about a few things that mattered, universally loved. After they all graduated, he moved back to L.A. and shared an apartment with his cool and beautiful older sister, but on the periphery of his stories was his not-cool but getting-rich oldest sister (“Baller Agnes,” he referred to her as) who was an honest-to-God investment banker.
Recall that this was around the time of the Dot-Com Bubble, before it burst in 2000. It was the era of the day-trader and the startup boom—also the time of WorldCom and Pets.com. There’s no good reason for me to remember this, but in the fragmented and splintery way that memory works, I distinctly remember standing in the living room of a group home for teenage boys with significant cognitive disabilities in Gresham, Oregon, when the news said something about a milestone in the Dow Jones Industrial Average. (For once, memory checks out: the Dow hit 20,000 for the first time in the spring of ’99.) I didn’t know what it meant, exactly, beyond highlighting for me the fact that I was making $8.86 an hour, and that stock market milestone meant that someone, somewhere, was making…………… uh, way more.
Looking back, I realize that I felt there was an inevitability to them making way more. They lived in a different world from me. I came from people who, by definition, were not making money in the stock market. (Not actually true: I learned later that around this time my dad was getting into a new phase of his work and was, I think, starting to build a legit 401k.)
The anonymous distant people to whom it meant something that the Dow—whatever that was—had broken a record were necessarily rich, white, capitalist, corporatist, not-so-secretly-fascist, ruthless, profiteering, etc., etc. They were bad people. I was good people. Wealth was one of many dividing lines.
Not only did I have no idea about how to pull the levers of wealth that they were born pulling, but I didn’t even know where you looked for the levers. Therefore they would continue to be wealthy and I would—contra my childhood fantasies—continue to be a person of integrity who made $8.86 an hour (and thought that was pretty decent!).
Point being when my boy Bernie got into the stock market, it was kind of a spectacle, kind of a joke, kind of a kick in the ass—but it was his thing and nothing of mine. I don’t remember much of the specifics except that he was really, really into Verizon, which Wikipedia tells me was formed from Bell Atlantic and changed its name to Verizon in 2000.
At last….
Here’s the point, y’all: if I had listened and fully bought in to what Bernie was saying, and had taken my three thousand dollars in survivors’ benefits and invested them in a Roth IRA, and bought Verizon stock with them, and squirreled away a little bit of cash to put toward that account, just blindly continued to buy nothing but Verizon every month since then, a hundred dollars a month, I would have lost money on the stock.
Thanks, B!
Over the course of 24 years, I would have invested $31,800. Verizon has been such a janky investment that I would have been paying an average cost of $49.46/share for something now worth $39.74/share. Once again, I’m an idiot and not one of the rich people!
EXCEPT…
In this hypothetical investment I just let the quarterly dividend reinvest, and so my $31,800 investment would now be worth $61,717. The doubling of my money was entirely due to the fact that I kept buying a little more each month, whether the stock was up or down, and I kept allowing the DRIP to increase the share count further. Even though the stock has performed terribly, I have doubled my money.1
That’s a terrible annualized rate of return. When the market as a whole returns on average 8 or 9 or 10 percent a year, and doubles your money on average every seven years, while my dumb ass made an ignorant investment that has taken twenty-four years to double, you can rightly pity me for being so stupid.
But when you contrast this scenario with what actually happened in 2000—i.e., I spent that Social Security money on books (OK they were worth it), meals, drinks, clothes, rent, concert tickets, whatever, and persisted in saving nothing each month for many years—my counterfactual investment was infinitely better: it’s the difference between zero dollars and 61,000 dollars.
MOREOVER…
Those shares (having multiplied to be 1,553 shares of VZ) would be kicking off a quarterly dividend of about a thousand dollars, or about $4,000 a year. If that was sitting there today, never having been touched since 2000, and I stopped putting in that C-note a month ever again, and they never raised the dividend ever again, and the stock price stayed flat for the next 20 years, by continuing to reinvest the dividend I would wind up in 2044 with $233,000 in Verizon stock, paying an annual tax-free dividend of about $15,000.2
Again, this would be a terrible performance. I would have been absolutely trounced by the index. Every jackass with a stock portfolio would have cleaned my clock. Turning 30K to 230K over the course of forty-four years would be… pitiful. Less than a two-percent annualized return. I would have done better investing in, hell, I don’t know, Beanie Babies.
But all that misses the point.
The real point here is that, by getting started then, by getting my back up off the wall and just doing something, anything, taking the first stock tip I ever got and having it turn out to be kinda trash, I would have had a meaningful investment of money that would help generate cash for my family when I am old. Hopefully I would have learned something along the way and made better and smarter investments, but even if I hadn’t, even if I had done nothing at all, $15K/year in tax-free income for retirement in addition to Social Security and a state pension would be… not nothing!
It would have required nothing from me but that I sit quietly, cluelessly, lazily, with a long time horizon, never reacting to the vagaries of the news and the markets.
Usually when you read financial writers, there’s a lot of “If you had bought ten thousand dollars of Wal-Mart/Amazon/Apple/Costco stock in 1990-something, you would have 27.9 million dollars today!” That’s nice, I guess. But it assumes you picked a winner (in addition to picking something you might abhor).
The thing is, you can still save legit money for retirement even if you pick losers. I would prefer not to, but the cardinal sin of saving is not picking the wrong thing, it’s not saving anything in the first place.
This one cooks. I’ve never heard this specific argument being made before—that bad investments still pay off. My favorite scene was you hearing about the market hitting new highs while in your boys home working for $8 an hour. Looking forward to the next one