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Why I don’t Need a Financial Planner

November 6th, 2010 Leave a comment Go to comments

If you immediately thought to yourself… “because he doesn’t have any money” after reading the title, you are only partly correct.

I think that anyone who has even a little bit of financial sense should be able to manage their own money.  Assuming you’re not super rich, or have some weird circumstances, why should you pay someone else to manage your finances?  Warren Buffett has 2 simple rules to follow when it comes to managing money that anyone can understand:

  • Rule #1 – Don’t lose money.
  • Rule #2 – Don’t forget rule #1.

While this is somewhat of a humorous take on money, there is some truth to it.  While one of the richest men in the world can get away with joking like this, how could this be applicable to mere mortals like you and I?

Don’t lose money to the scammers. I have a rather broad definition of “scammer”.  A mutual fund loaded with hidden fees, a broker charging Grandma $150 to trade a stock, or a “Free Investing Seminar” hoping to lure you in and convince you to hand over money are all types of things that need to be avoided.

Don’t lose money by chasing the bull. Wayne Gretzky was awesome because he “went to where the puck was going, not where it already was”.  We should try to do the same thing.  A few weeks ago, I was talking with a Program Manager from Apple (he worked on iTunes), and he was literally in love with Apple stock.  While I can understand his reasoning, because he could very well be a millionaire from his stock options, he actually was recommending that I should buy in too.  No thanks!  He said “It just hit $300,  it’s great!”.  I replied that is exactly why it’s the wrong time to buy.

Apple could very well keep going up, but will it go up 1,000% from where it is today?  No way.  Back when Steve Jobs re-joined the company is when we should have bought that stock.  In 1997, the stock was trading for around $17.  If you bought $10,000 worth of Apple stock back then, it would be worth roughly $175,000 today.

Don’t lost money by taking unnecessary risk. I’m one of the worst offenders when it comes to this one right here.  I should have learned my lesson by now, but I keep making the same mistakes and taking the same risks.  While this type of problem could take many forms, my problems is trading stock options.

Stock options are supposed to be used to reduce risk, allowing you to shield your investment from big swings in the market.  Instead, it can also be used to legally gamble with your hard earned money.  This year I made a pretty big bet with Motorola.  In January of last year, I bought about $3,000 worth of Motorola $10 call options with a maturity date of January 2011.  My rationale was that the Android phones were going to rise and take over this year, pulling Motorola up with it.  Unfortunately, this doesn’t look like it’s going to happen and I just wiped out any other gains I would have made this year with other investments.  While if I had guessed right, and gambled on Apple, I probably would think I was sooo smart, at least I hope to learn to leave those options alone.

Maybe there’s other ways to lost money that I haven’t mentioned here, but these were just the few that came to mind as I was writing this.  No doubt, I’ll probably find a way to lose money in the future, and if I do, I’ll be sure to share.

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