The past five years have been among the most volatile in the stock market's history, and they've left investors with an abundance of lessons. On the Drip message boards, we asked Motley Fool community members and readers, "What is the largest lesson that you've learned in the last five years, and over your investment lifetime?" Today we share some of their answers:
Biggest lesson for me -- don't be too scared to start. Be afraid of not starting. At age 42, I am in the middle of graduate school and mid-life career changing. My husband, after a catastrophic illness two years ago, is also in college for vocational retraining. I had never saved a thing for retirement until last year. I read The Motley Fool Investment Guide and every book by Suze Orman I could get my hands on, and in the last 16 months I've put away over $10,000 -- maxed out my 403(b) at work and started several DRIPs. Not nearly enough, but now I know I'm headed in the right direction. Don't be scared to start.
Nobody will look after your money better than yourself [and that doesn't mean don't get help if you want it, but know exactly what your help is doing with your money], and never invest in anything you don't fully understand.
Myself, I started with letting advisors make my decisions for me and they bought accordingly. The best thing I ever did was to dive into the library and learn the game. Now I'm more wary, am alert to the tricks and can put any "salesman" on the defensive by asking educated questions. Nothing beats that sense of self-determination.
What I have learned...
1. Never buy penny stocks.
2. Don't buy a stock because someone else told you to, do your own research.
3. Buy what you are interested in learning about or what you know.
4. Invest every month no matter how small an amount -- it all adds up.
5. Have some ready cash in a savings account, don't have it all in a money market account or in stocks, bonds, etc. (I learned this on 9/11 when the markets closed -- can't get money out of a money market account if the markets are closed.)
Buy what you know. I'd like to add a caveat to this: If you do not know it and want to, buy a little and get to know it. I think you'll find that you will follow it more if you own a little, versus not owning any.
Get a plan and stick with it. The plan will obviously evolve, but if you stick with it, the plan will allow for structured investment decisions versus hurried ones.
Have fun. This is the most important. I believe that if you do all of the above, the chances that you'll have fun are high. This is a long-term thing and you should enjoy the ride -- it's undoubtedly going to be bumpy!
I've learned that a little bit of sacrifice and patience can pay dividends (pardon the pun). By not spending money that you hardly realized that you spent every day, and investing it a little at a time, you can put yourself in a better position to take care of your spouse, prepare for your retirement, and provide for your children.
Investing should be fun as well as rewarding, but it's not for the lazy. If you aren't interested in (or don't enjoy) learning about the companies you choose to invest in, you're better off buying an index fund and pursuing other hobbies.
It takes time to build, but only a short time to crash. Example: Enron (NYSE: ENE). Also, a bull market takes time to build, but a bear market generally has a shorter duration. The prices in a bear market nose dive faster and you feel helpless while prices are declining quickly. Avoid 1. Manias, 2. The popular investment or sector of the day.
That making money is hard work, whether it is earning a paycheck or investing those earnings [in anything but an index fund], it is hard work..
Exilion, at the end of a longer good post, wrote:
Keep your eye on the prize and keep learning. Probably the most fundamental elements are not to take yourself too seriously, have a little fun, and strike a balance in living. Money is, at its basic definition, a tool. That is all it is. The importance of money as a tool changes as you responsibly use and deploy it.
The hardest lesson that I learned... In the mid-'60s my father thought that an investment in the Pennsylvania Railroad would be a good one for me and my brother so he bought us a few shares. Daddy has always been an astute investor whether investing in land, timber, or stocks and bonds, so this proved to be no exception. He always buys right. It is the selling timing that gets him! PRR merged with New York Central to form Penn Central. The stock climbed to the mid-80 dollar range. I wanted to sell as I had a 50% gain. He talked me out of it, and we held on... right into the bankruptcy!
The lesson is to follow your own advice rather than someone else's when the money is yours. You know your goals, and no one else does, even your closest loved one or friend. Once you establish a goal, stick with it. You will make mistakes, but the lessons learned will be valuable ones to you.
Buy and Hold doesn't mean Buy, Hold, and Forget (thanks, Enron!); stay away from credit card debt; get in early and, as long as the company fits your criteria, invest regularly so it becomes a habit.
Taking control of my investments and finances has made me much more secure during this economic downturn than those I know who rely solely on the advice of others (like a financial advisor). [Plug time: As a member of TMF Money Advisor, you have a personal financial advisor at your fingertips, but the advisor doesn't have anything to sell you and won't manage your money. They are there to answer your questions about anything money related and to help guide you through your options.]
We end by linking to another great post, written by wcfenton (Bill), who starts by reminding us, "You are never too old to invest!"
Thank you to everyone who posted their investing lessons. There are others on the boards; I couldn't use them all in this column, and many were posted after this column was submitted. To read all the posts, visit the two Drip boards linked in the top right of this page. There's great community there. Fool on!