10-Plus Money Lessons Learned the Hard Way

In this episode of Motley Fool Answers, Robert Brokamp and Alison Southwick talk to special guest New York Times reporter John Schwartz. Like many of us, the money decisions he made through the first few decades of his career were not the very best, but in his mid-50s, he made a concerted effort to get back on track, which he chronicled in his new book, This is the Year I Put My Financial Life in Order.

And because it is far less painful to learn from other people's mistakes, the Fools brought him in to discuss five lessons -- plus a bonus one -- that they took away from his tale of fiscal woe and redemption. First, though, in the "What's Up, Bro" segment, they reflect on the difficult 21st century General Electric has been having -- and what you can learn from it.

A full transcript follows the video.

This video was recorded on May 8, 2018.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool. Hello, Bro!

Robert Brokamp: Hi, Alison!

Southwick: On this week's episode we're joined by The New York Times reporter John Schwartz to talk about his book, This is the Year I Put My Financial Life in Order. Bro is also going to share five lessons learned from the fall of GE. All that and more on this week's episode of Motley Fool Answers.

So, Bro, what's up?

Brokamp: Well, Alison, in theory you'd think that General Electric would make for a solid, long-term investment. Co-founded by none other than Thomas Edison, the company has been around since 1892. For decades it has been one of the biggest, most diversified companies in the world. It paid a steady dividend. We've all used the company's products and services, and [perhaps] on a daily basis.

But so far, this century, the reality of GE is that it has been a horrible investment. After reaching almost $60 per share in 2000 on a split-adjusted basis, it now trades for $14. What are the lessons for investors, workers, and retirees alike? Well, I have five.

Lesson No. 1: Even blue chips get the blues. Back in the early 1920s, according to Wall Street lore, a Dow Jones employee named Oliver Gingold was standing next to a stock ticker machine in a brokerage that would eventually become known as Merrill Lynch, and he saw a few stocks trading for more than $200 a share. They moved higher, so he reportedly turned to the person standing next to him and said he had to get back to his office to "write about these blue-chip stocks."

Thus, an investment seal of approval was born. The term "blue chip" was originally applied to stocks with high prices, because blue chips are worth more than red and white chips...

Southwick: Oh! From gambling.

Brokamp: Yes. But, they have since come to be thought of as reliable, steady stocks. In fact, according to Merriam-Webster, the current definition of a blue chip is "a stock issue of high investment quality that usually pertains to a substantial well-established company and enjoys public confidence in its worth and stability."

Ah! Where can you find such stocks? Well, you look at the index -- the only index -- that has the term "blue chip" in its official description, and that is the Dow Jones Industrial Average. GE was among the 12 original companies listed on the Dow [which was created in 1896] and it's the only original member of the Dow [index].

But despite such a blue-chip pedigree, GE hasn't been a model of stability or reliability over the past 18 years. The lesson, here, is no stock is a sure-fire moneymaker, despite being called a blue chip.

Lesson No. 2: Holding for the long term is no guarantee of success. It was early 1996 when GE stock first exceeded $14 a share on a split-adjusted basis. Here we are, 22 years later, and the stock is still at $14 a share. That's a holding period of more than two decades with no growth.

Our standard Foolish advice is to keep money that you need in the next three to five years out of the stock market, because generally that's how long it takes for the stock market to recover from a bear market, but an individual stock is a very different thing. As the history of GE illustrates, even a time frame of well more than a decade [two decades!] is not a guarantee that you're going to make money.

Lesson No. 3: Past dividends are not necessarily indicative of future results. Like many companies during the Great Depression, GE cut its dividend, but the payouts weren't reduced again for decades [not until 2009 in the Great Recession]. In those intervening 80 or so years, investors might have understandably thought, "Well, a dividend from GE is like death and taxes. It's a sure thing." The reality is that no dividend is guaranteed and unfortunately for GE shareholders, they cut the dividend again last December.

It can be tempting to believe that something that happened for decades will continue into the future, but the creative evolution of capitalism ensures that no investor can rest on a company's past laurels.

Lesson No. 4: A diversified company isn't a substitute for a diversified portfolio. There are very few companies that have been in as many businesses in as many countries [currently 130, to be exact] as GE has. You think of appliances, electronics, aviation, healthcare, transportation, sciences, entertainment, plastics, and of course light bulbs. Some sort of GE business or service has touched the lives of millions and perhaps billions of people.

But its multiple businesses in multiple countries didn't prevent the stock from being a dud of an investment, and unfortunately this is a lesson painfully learned by many former GE employees. According to a recent Wall Street Journal article, they thought they were in a fine position to retire given that they were getting a pension from GE as well as a heaping helping of company stock. Because they had a stock purchase program you could buy it at a discount.

In one case, they profiled someone who retired in 2016 with $300,000 worth of company stock, but because the company has lost more than half its value in less than two years, this particular retiree is now looking at having to go back to work.

The bottom line, of course, is don't invest more than 5-10% of your portfolio in one stock, regardless of the size and the reach of the company.

Lesson No. 5: Our last lesson is to have a plan B. Over the past several months, GE has announced plans to cut thousands of jobs and reduce its corporate staff by 25%.

Southwick: Wow! That is substantial!

Brokamp: Substantial. So, if you're still working, your financial future will be determined by two things: your human capital [that is, your ability to earn a paycheck], as well as your investment capital. And most people can't count on staying with the same company, [as Oliver Gingold did , the coiner of the term "blue chip"]. He began at Dow Jones in 1900 at the age of 15 and he worked there until he died in 1966. So, he had a 66-year career with Dow Jones. Most of us can't rely on that.

The lesson, here, is just as your portfolio should be diversified, so should your human capital. Regularly develop your skills, your network, and your backup plan for what you'll do if your employer no longer needs or can afford your services.

[...]

Brokamp: Most of us can look back in our lives and think of times when we wish we had made different decisions when it comes to our money. According to a Bankrate survey from last year, four out of five adults have financial regrets, the biggest being not saving enough for retirement, not saving enough for emergencies, taking on too much credit card debt, taking on too much in student loans, and not saving for kids' college educations. Chances are over the course of your life you've made some mistakes, as well.

However, you likely didn't write a whole book about them unless you're John Schwartz, a science writer for The New York Times and the author of a new book, This is the Year I Put My Financial Life in Order. We are fortunate to have John join us for this episode. Hello, John, and welcome to Motley Fool Answers!

John Schwartz: Thank you! It's good to be with you!

Brokamp: You have had a successful career writing for some of the country's most well-known publications. You also raised three kids along the way and then at some point, in your mid-50s, you decided it was time to really get your financial life in order. Was there a light bulb moment that convinced you and your wife that it was time to dig into this project?

Schwartz: There were two things going on, Bro. One is that I was in my mid-50s and I realized that I was getting closer to retirement. Retirement was something that I could see, though I didn't know when I was going to do it. It was something within the realm of possibility and, at the same time, close enough to be scary, but far enough away, I figured, that if I needed a course correction I could take it.

At the same time, my wife had convinced me to sell the house we'd been in for 50 years, which allowed us to wipe the slate clean on a lot of the debts that were strangling us. We had some credit card stuff, but we also had the college loans for our two older kids. So, suddenly we had breathing room, and in that moment of clarity, I realized that I should stop just fretting over where we were financially and figure it out.

Brokamp: As you point out in your book, you're not alone. There are plenty of people who have not really gotten a strong hold on their finances well into their 40s, 50s, and 60s. Why do you think it is that that's difficult? What is it about finances that people find difficult or intimidating?

Schwartz: Well, many people in your general audience are happy to think about money. Love thinking about investing. It's a cool thing. For a lot of other people, it's just scary. Money is emotional. Thinking about money is emotional. We use emotional terms when we talk about it. "Was your father withholding?" For people a little more like me, there's more phobia going into it, and so it's one of the things that if other important stuff is happening, it's easy to push to the side.

Brokamp: I've read the book and I quite enjoyed it.

Schwartz: Oh, thank you!

Brokamp: I have pulled five lessons from it. You're hearing these five for the first time, so feel free to disagree with them or change them in any way. But, first let me set the stage a little bit more about your biography.

You grew up in Galveston, Texas. Your father was a state senator and lobbyist who at age 91 is still active in politics, which I think is pretty impressive. You've got an undergraduate degree and a law degree from the University of Texas, but instead of becoming a lawyer you decided to try your hand at journalism. You got a job with Newsweek and moved to New York City. In 1988 you bought a co-op apartment [when, by the way, mortgage rates were over 10%].

And this brings us to what I think is the No. 1 lesson in your book and that is know what you're getting before you buy. Tell us a little bit about why buying this apartment didn't turn out quite like you had hoped.

Schwartz: Well, if you go into the world of real estate with the idea that you can't go wrong in real estate [which is how a lot of people felt before, say, 2007], then you might be lulled into thinking, "God! Everybody's buying. I better buy". You look at a place and you say, "Well, this looks like a good value," without doing the kind of research that tells you whether you're going to be comfortable in the place. Whether it's financially likely to do well and do well for you.

We fell in love with the building. Fell in love with the apartment. It was big. By New York standards it was enormous, and it was up in Washington Heights, which is a really cool neighborhood. When it came time to sell, we found that it was unsellable for a number of reasons we could go into, but this was a big set of problems that might have been avoided if I'd done more research, and also if I'd waited out this interest bump that we were in the middle of.

Southwick: There's also a sense that when you get to a certain age, that's just what you do. "We're at this age and now I'm supposed to buy a house" regardless of whether it's a great decision for you financially.

Brokamp: Right. I think you had at least one kid at that point.

Schwartz: Right. We had a kid. You've got to buy a place for him. It's on the program.

Southwick: Right. You were doing everything right. Come on!

Schwartz: That's right. The only problem was that I did those right things in the wrong way.

Brokamp: The other thing is it turns out that your neighbors -- I don't know how you say it -- weren't the most family friendly folks. A lot of noise. One guy threatens to cut you... Things like that. It's very difficult.

Schwartz: Alison, you've got to read the book. It's fun. There were problems in the building. If I'd spent more time in the building, I might have known that we loved the building, but maybe this particular apartment isn't the one you want.

Brokamp: Right.

Schwartz: Maybe you want to look for a different one. Maybe you want to wait until a different one comes open. We didn't know that the upstairs neighbors ran a music studio out of their apartment.

Southwick: Fantastic!

Schwartz: We found that once we were there.

Southwick: Fantastic. Lull your kid to sleep every night. It worked out so well.

Brokamp: One of the ways they solved it was to get an air conditioning unit that was the loudest. Am I right on that?

Schwartz: That's right. I walked into the appliance store and I said, "Can you help me? I want the loudest air conditioner you've got." And, of course, they look at you like, "That's not really the request we get," but they had heard it before.

Brokamp: Let's move on to Lesson No. 2, because it's related. A few years later, you take a job with The Washington Post and you move to the D.C. suburbs [actually, the People's Republic of Takoma Park], and I bring that up because you and I, John, moved to Takoma Park at the exact same time, which is a story for another time.

Regardless, you moved from New York. You couldn't sell the apartment. You decided to try to rent it out, which brings us to Lesson No. 2. Know your rights as a landlord before becoming a landlord.

Schwartz: That's right. The second tenant I got simply stopped paying. In many other parts of the country, I might have been able to fill out some papers and start an eviction pretty painlessly. Of course, the downside of that is we have an eviction crisis in this country and in many places it's too easy to evict and bad things happen to people who don't have the resources to defend themselves.

New York is a little different. It's much more pro-tenant rights, and while I support the idea, in my particular case it did not turn out well. The guy knew his rights better than I knew mine, and he said to me over the phone in words that I won't repeat, here, because they're fine for print [but not for the podcast], "You're not going to get me out of here. I'll be hearing Christmas bells before you get me out of here." It was pretty early in the year at that point.

I just wasn't aware of what problems I would have if somebody stopped paying because I did the things you're supposed to do. I did a credit check. The guy looked good. I didn't just stumble into it. I did the things that I thought you're supposed to do.

Ultimately, I talked to a lawyer who said, "Yeah, I could try to evict him. It will take this amount of time and it will cost you this amount of money. Here's something that might be painful, but I think you should try. Send him a note saying if he leaves by the end of the month, you won't go after him for the money he owes you." And I did, and he left.

Brokamp: And he did not leave the apartment in great condition.

Schwartz: No, he tore it up pretty good. He wasn't nice. And by the way, by the time he left, our savings were gone. We were in pretty bad shape. And we were paying the mortgage in New York, and the maintenance fees, and rent in Takoma Park. Ultimately, we bought a house, there, and so we were paying the mortgage there, as well. It was just squeezing us to death.

Brokamp: This brings us to Lesson No. 3, which you already touched on. That's to get the right advice, and there are various aspects of this.

First of all, you did find a lawyer that was able to give you some good advice, even though other people were hinting that you should possibly declare bankruptcy. In the end, you found some other solutions.

Schwartz: That's right. The thing that comes immediately to mind is that when you've got crushing debt and this sort of money drain of this New York apartment, people will say, "Well, you've got to file for bankruptcy." I mean, relatives who are lawyers said it was time to file for bankruptcy. But when it came time to find an expert to help us through it, and you go to an actual bankruptcy expert, you might get different advice, and we did.

I found a guy who was terrific. He said, "You described your financials to me. You aren't a candidate for bankruptcy. You only have one big problem. Your income is decent. Your debt load, aside from this, is pretty low. You have one problem, and the way you get rid of that problem is through default and foreclosure. You now need to give up the apartment." He walked me through what I would have to do, and I did it, and I felt like the biggest failure in the world.

Brokamp: Right.

Schwartz: So that's a good outcome.

Brokamp: But you did get out from under that, so that's good.

Schwartz: It is.

Brokamp: Another situation in which you didn't get great advice was the advisor who sold you an annuity as a way to save for college.

Schwartz: Yes. He was a guy who showed up at work. He gave a presentation. He sounded smart. We said, "Well, let's go talk to him." We had no idea how to save for college. We figured experts know things. The guy was smart, but he didn't sell us the savings plan that would be right for us. He had a complex annuity setup and said, "This will pay the interest. You'll be able to pay it down. This will come every month."

My wife just said, "Why are we doing this if we're just going to pay the money?" When it came time for my daughter to go to college, she cashed the things in and paid for tuition with them, because they weren't appreciating in value in the way that the guy said they would, and what's worse is they didn't offer us any of the supposed advantages that they would offer. He had said that because of the way these things were structured, they wouldn't show up on your financial aid forms, which is not quite fraud.

As a matter of fact, everything we had did show up on the financial aid forms unless we wanted to commit fraud, and in some specific areas with some specific schools, you could put it aside over here as a different investment vehicle. In fact, it did nothing of the good it was supposed to do for us and the only person it really did a lot of good for was the guy who got the fees.

Brokamp: Right. Just to make it clear for listeners. Any type of life insurance or annuity is not a good way to save for college. In your book you talk to various types of financial professionals [a traditional broker, someone at Vanguard, a fee-only planner with the Garrett Planning Network]. Generally speaking, where do you come down on that? If someone wants financial advice, where do you think they should turn first?

Schwartz: I got real religion on the idea that you want to try to separate yourself from somebody else's conflict of interest to the greatest extent possible. It doesn't mean that every broker is bad -- some of them are terrific -- but my preference is now go to the people who start out with a fiduciary duty to you and who are obligated by the terms of their employment to put your needs first.

I came down on hourly rate, fee-only financial planners because for many people you come up with specific problems. If you can formulate the question, they can provide the answers and work with you, and you don't need somebody telling you how to churn your portfolio every two months. And there's that sort of lunch visit in the book with one of these people, and he was terrific.

So, if you are going to go with a broker, I also recommend that you ask many questions and be as tough in finding that person as you would be in finding a car. I mean, we ask all sorts of tough questions as consumers in all sorts of areas of our lives, but because there's this person sitting across from us, we might chicken out. This is not a time to chicken out. This is your money.

Brokamp: Lesson No. 4 is to be prepared for medical emergencies. Few things can upend a family's finances like unexpected healthcare costs. In your book you cited a few examples, including expensive dental care for your son that wasn't covered by insurance. Fortunately, you had been participating in The New York Times employee stock purchase plan, so you had that as a resource. Unfortunately, when you had to sell, you had to sell at a 90% loss.

Schwartz: Yeah, but it worked out.

Southwick: That's the spirit!

Schwartz: His teeth looked terrific! Come on! And by the way, the stock has recovered really nicely, so all my friends who still own Times stock are in great shape. I'm really happy for them.

Southwick: That's so sweet of you.

Schwartz: All you shareholders out there. I love you. I hug you. I want you to be happy.

Southwick: That's so great. What's the German word for the opposite of schadenfreude? That's really sweet.

Schwartz: See, whatever it is, I've got it. I'm just nice, you know? This thing happened to me. I mean, look, in the financial world I am the inflatable clown punching bag. I get knocked down a little. Sand in the bottom just brings me right back up again. You can take another punch the world has. It's fine. I'll still be smiling. It's fine!

Brokamp: In the book you also point out that it's not just people, and that you ended up having to pay $5,000 for a weekend's worth of tests for your cat.

Schwartz: OK, so I'm not happy about that one, but thanks, Bro! Thank you very much for bringing it up because I had gone a couple of days without thinking about the cat.

Brokamp: For me, one of the saddest stories in the book is Jolie Solomon. I don't know if I got her first name correctly, but she was a reporter with The Wall Street Journal and other publications for more than 30 years. But now, as I understand it, she lives in virtual poverty due to health problems of both Jolie and her daughter.

Schwartz: Jolie is an immensely talented journalist. A gifted writer. A gifted editor. And her health problems really drove her out of the workplace and left her in really tough condition. And the poverty and the fear of her medical costs and of eventual bankruptcy were terribly traumatic to her.

I tell her story to say, as we've said in our many conversations, that this can happen to anyone. Anyone can get sick. Anyone can be incapacitated. And it's almost fashionable when people get sick and get forced off the work track to try to find fault with them. "What'd you do wrong?" Or "Poor people are lazy." People say that. They actually say it. There's nothing lazy about my friend Jolie. And when this hit her, I saw myself in her -- I saw anybody I know -- so she was kind enough to let me tell the story.

Brokamp: It's definitely a cautionary tale. Let's move on to Lesson No. 5 and on a happy note, because in the end you and your wife, [Jean], are doing fine, and part of that is due to Lesson No. 5, which is save at least 10% as soon as you can and "don't peek." Despite your claims of not really knowing a whole lot about money when you were younger, you did know enough to start saving 10% in the company 401(k) in your late 20s, and the "don't peek" part comes from your conversation with John Bogle.

Schwartz: That's right. Look, I didn't do everything wrong.

Southwick: Do you feel like we're beating you up too much?

Schwartz: No, I'm fine, but I had one good thought. I do some things well and some things badly. I'm good with paragraphs. But in that moment in my 20s, I got a nice raise and I realized that if I put 10% of my income into a 401(k) at that moment, it would be money I'd never see otherwise. I wouldn't miss it. I wouldn't lose it. So, I never felt the dip in my income that committing big to a 401(k) would cause.

Of course, I also explain in the book that you can start a 401(k) with 1%. You can start an IRA with 1% of your income, which shouldn't feel like much and then have it ratchet up every year. If you can stick with that, then you can get to 10% pretty quickly. But I was able to do it all at once, and I was able to stick with it.

The part that I did wrong was that I didn't do enough research to understand what the best investments might be, and so it's possible that I might have had, by now, more in the account. I made some adjustments in my year of looking at my financial life and moved into lower-fee funds. So, I could have done better, but I could have done a lot worse.

Brokamp: And despite your various jobs [your three main jobs], the 401(k) was with Vanguard throughout the whole period, which I think is part of why you ended up talking to John Bogle. Despite all of that, the analysis you got was that you're probably going to be OK. You have been saving. You are fortunate to have worked for a company that will provide that classic defined benefit pension and, as you already mentioned, you downsized, recently, your home from New Jersey that allowed you to pay off some of the debts that you had. So, in the end, you and [Jean] are going to be OK. Correct?

Schwartz: I think that's exactly right. Barring some other mess [and it's always out there], if things continue in the way they're going, we ought to be OK, and that's the good news of the book. That we made it and we would hope that other people could figure that out, as well, for themselves, especially by starting young.

Brokamp: Right. A bonus part of the book -- I wouldn't necessarily call it a lesson because it didn't lead to any progress for you -- is that you did go into detail about getting an estate plan.

Schwartz: That's exactly right.

Brokamp: You point out that Prince died without a will. You were about the same age and at that point in your life you didn't have a will, either. But also, as a journalist you covered the Terri Schiavo case, which I think most of us remember. It could have been avoided, to a certain degree, with better estate planning on her family's part. It tells a little bit about your road to getting an estate plan.

Schwartz: It is, again, one of those things that I avoided because I've already said I'm a little phobic about money. That I would rather think about other things. Now let's talk about death. No! Let's not talk about death. Let's really not talk about death.

Southwick: No one ever wants to talk about death.

Schwartz: Why would I? One of the really nice things about having a job that is all-consuming is you can put off every decision in your life for a really long time and claim, "Well, I don't have time. I'm working."

So, while assessing all these other things, I decided it was really time to get the will. And because I'm not terrific with paperwork and we felt that our lives were a little complicated, my wife and I decided that we would go with an attorney. I found one nearby and he turned out to be a very nice guy who was funny. I place funny really high on my list of what I look for in a professional. If it's funny -- not mean, but actually funny -- that shows the kind of warmth that I can relate to.

But he also had good recommendations from friends. He walked us through what we might need. He walked us through the issues that we were going to encounter. He let us know that we were nowhere near the limits of the estate tax, so we'd be fine, there. And then, after walking through all this in his office over the course of something like an hour and a half, we went away.

A week or so later, not only did he provide the wills themselves [one for me and one for [Jean], my wife], but also summaries that were very readable and he also had walked us through and wrote up for us advanced directives and a medical power of attorney, the sort of documents that make sure that if you don't want to end up in a hospital with all tubes and no consciousness, with people working you over to no avail or benefit; if like me, you really don't want to see that happen not just to yourself, but to your family standing by, that this is the way to make those wishes explicit and get them down on paper.

I'd always joked to my daughter that if I end up unable to do certain things, you just get a gun. And she says, "Daddy! That's not the way to do this." It's a fun conversation and a family moment -- "Shoot me. [Signed], Daddy."

Southwick: I can relate to that conversation.

Schwartz: It's the way we talk to each other.

Southwick: Put me out on an ice flow. Dad!

Schwartz: Dad, you're embarrassing me. But it only gets you so far and it doesn't help you with the hospital. "Well, we had this conversation and he said, 'Shoot me.'"

Southwick: So, there she is. She's at the hospital and it's just mayhem.

Schwartz: The legal effect of that is just not great.

Southwick: Right.

Schwartz: But they know what to do with pieces of paper, so you get the piece of paper, and you leave a copy with the lawyer, and you make sure that the kids have copies or know where to find them. Because you just spent a lot of money on this stuff, you want it to be useful. And then you hope that these bad things don't happen, but you feel a lot better for having done them.

Brokamp: Well, thanks John for taking time to talk to us!

Schwartz: Oh, guys, it's been a real pleasure!

Brokamp: Again, the name of the book is, This is the Year I Put My Financial Life in Order. If your finances could use some tuning up, or you just like to read about the financial foibles and triumphs of other people, check it out!

Southwick: And triumphs.

Brokamp: And triumphs.

Southwick: Foibles and triumphs. I wanted to underline the triumphs.

Schwartz: Thank you!

Brokamp: It does have a happy ending. Thanks, John!

Schwartz: Thank you, guys!

Southwick: That's the show. You can send us your questions, feedback, glowing praise through [email protected]. Also, if you're feeling generous with your time, head over to iTunes or wherever you listen to us and give us a review because I've been staring at the same crabby reviews since March! Some people don't find my voice obnoxious. A lot of people think it's fine.

Brokamp: I totally disagree with this person.

Southwick: Yeah, and then he said that your voice is crackly and weak, which is not helpful feedback.

Brokamp: The crackly part is probably true. I don't know. Maybe the weak part, too.

Southwick: It's our voices. We can't do anything about it. You get what you get. So, please go leave a review. Then I have to stop seeing that one over and over again. Ugh! I mean, we welcome all feedback, even if it's negative.

Brokamp: Yes. Save that feedback for the email.

Southwick: Yeah! E-mail us your negative feedback so we can open a dialogue...

Brokamp: There you go!

Southwick: ...and then post your glowing praise on iTunes. Would you? Please? Thanks! The show is edited strummily by Rick Engdahl. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody!