Math used to make me sick.
As an undergraduate English major, I needed a tutor to pass "Math for the Liberal Arts Student" (also known as "dumbbell math") and would get physically ill when faced with a word problem. Later, as a college professor, I had to master rudimentary ratios to grade my students' work. (Let's see: 80% equals a B, which equals 3 on a 4-point scale; is that right? Oh, heck, I'll just give them all A's!) But other than balancing my checkbook -- a chore I detested before Quicken -- I managed to avoid most math. I had decided early on to side with the humorist Fran Leibowitz, who, in her book Social Studies, exhorts readers to "stand firm in your refusal to remain conscious during algebra. In real life, I assure you, there is no such thing as algebra." Amen, Fran!
The price of inexperience
The first time I really understood how my math phobia could actually hurt me in the pocketbook came when I left academia for the world of corporate training -- and had to do something with the retirement income I'd accrued. Retirement, reschmirement, I remember thinking dismissively. I was 35 years old and YEARS from retirement! So I used some of my funds as a down payment on a house (good move) and gave the rest to a "financial advisor" I found in the Yellow Pages -- a possible good move, if I had known what I was doing.
But of course, I had no idea what I was doing; I just wanted someone else to take care of my money, leaving me free to think about more interesting things -- the plays of Shakespeare, the best recipe for salsa, the new Stones album -- y'know, important things. Two years later, I decided to see what was up with my investment account, and I learned that much of it was gone. Some stock slump of the late '80s? The oil crisis? A Martian invasion? Who knew? Who cared? I did what any knuckleheaded know-nothing investor would have done: I took the remaining cash and vowed never to trust a financial advisor (or the stock market) ever again.
Time passes, and Ellen gets older and somewhat wiser ...
Two incidents in the early '90s convinced me that I had to conquer my aversion to numbers. The first occurred when my business partner and I were audited by the New Mexico Taxation and Revenue Department and found out that the State of New Mexico owed US money! (How clueless do you have to be to overpay your taxes?) The second was when we received a "taxes due" notice from the IRS (plus penalties, plus interest) because our accountant, a man we blindly trusted to deal with the tedious details of our business taxes, decided to suffer a nervous breakdown and leave town -- and all his clients in the lurch. Attention to these details must be paid, we reluctantly agreed.
Golf-carting to Damascus
So after much weeping and gnashing of teeth, we got down to business: We learned to file our own taxes, and we opened IRA accounts with a reputable mutual fund from Vanguard. I funded my own IRA religiously for a number of years, but basically all I did was put all my yearly contribution into a very conservative fund that a friend said was a good place to park my money. I don't think I ever took the time to find out what this particular fund's holdings were. Didn't really care, either.
Then one day, I was playing golf with members of a business women's group, and my cart partner (also a business owner herself) turned to me and said, "Are you paying yourself?" I had no idea what she was talking about. "Of course," I replied. "I pay myself a salary and take distributions from my company's profits."
"No, no," she replied. "Are you putting money in savings or investments on a regular basis? Are you making your money work for you?" Um, well, no, of course I had never thought about "managing" my money. (Yawn, snore.) But she got me thinking: Maybe I could take hold of my financial future. But where to start?
Soon after that day of economic epiphany, I joined an investment club (at age 53) and slowly, painfully, haltingly, began to learn how to save, invest, and manage my money. I'll admit I still sometimes get a pain in my eye trying to comprehend debt-to-equity (DOE), price-to-sales (P/S), price-to-book (P/B), price-to-earnings (P/E), or price-to-earnings-divided-by-growth (PEG) ratios. (Ow, my eye!) But I also now find annual reports interesting, if not exactly riveting, and I can peruse an income statement without my eyes glazing over. (I can hardly believe this myself.)
Around the same time, I made a very wise decision and subscribed to Tom and David Gardner's Motley Fool Stock Advisor newsletter. Based on their advice (complemented by my own research and analysis), I set up a portfolio called "Risky Business." This is my "learning" portfolio: I look for companies that seem really interesting -- Programmer's Paradise
Best of all, I no longer throw money blindly into my IRA. Each year, I determine whether to add to a fund I already own or purchase shares of something new. I am now the queen of diversification: I hold shares in a conservative "blend" fund (60-70% stocks; 20-30% bonds), a "growth" fund composed of large-cap U.S. companies, a small-cap index fund, a mid-cap index fund, and, just this past year, an international "growth" fund. (And to think -- five years ago, I wouldn't have known what "cap" means.)
Today, I am an empowered investor, thanks to the members of my investment club and all I've learned from the Motley Fool crew. In future articles, I'll describe how investment clubs form, storm, and norm, to help you decide whether membership in one would be useful for you.
And I promise you, it won't hurt a bit.
If you, too, would like to take control of your financial life, you should also consider a free trial to GreenLight, The Motley Fool's new personal finance service. Whether you're fresh out of college or headed into retirement, GreenLight has customized advice to help you make the most of your money. Click here for more details.
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