One of the most expensive things in life is regret. We all have missed financial opportunities that would’ve helped immensely in improving our financial situation. I had a costly car mistake and sold too soon some of my stocks that has cost me hundreds of thousands. Done By Forty had a post that reviewed his missed opportunity by paying off his house too soon and missing out on investment gains. I’m a big proponent of leverage as paying my mortgage down is last on my financial priorities. With finite funds I prioritize the following:
1. Maximizing 401K tax deferred.
2. Maximizing Roth IRA.
3. Saving additional 15-30% in taxable account.
4. Money for vacations, beer and Poke (Popular food item in Hawaii, you clicked didn’t you)
5. Additional mortgage payments.
Paying down his mortgage was the right move financially for Done By Forty as it made him feel more comfortable. Instead of dwelling on that DBF is now looking to leverage and invest in a turnkey rental property on borrowed money instead of paying cash. When you miss out on a financial opportunity you should take that as the price to pay for a financial education.
Ryan at Impersonal Finance had a great write up about recognizing opportunities and seizing upon them. There will always be financial opportunities, the problem is it’s often very difficult to recognize them when it’s happening. Why is that investors and rich people always seem to be make money while the middle class are often missing out or late to the party? We hear it all the time how wages are stagnating and the middle class is in decline. In order to get ahead wages alone won’t do it, only having investments that grow faster than inflation will allow you to get ahead. Having a 1% savings account is not getting ahead.
“Obvious 2009 was the time to invest in the stock market, market’s too high I’m waiting for a correction”
I hear that all the time that 2009 was a great year to buy and the market’s just too high now. They’ll time the market and put money in when there is a correction, I know some that are still waiting from 2012 for that correction. It wasn’t an obvious time to buy in 2009, I invested nearly $30,000 that year and lost 35% by the summer. This was on top of the $100,000+ I lost the year before. With all my losses I regretted having so much invested, I was envious of those who had made extra mortgage payments or paid off their homes. Even the YOLO crowd was vindicated, why bother investing when you’re going to lose it all anyways. Better to spend it now and enjoy your life.
Price to earnings (P/E) is what an investor is willing to pay for a company’s earnings to own that stock. The current P/E in the stock market is 18, the average investor is willing to pay 18 times earnings. In 2009 with earnings collapsing the P/E was around 30 and rising as sales were collapsing. The market is cheaper today than the “obvious” 2009 prices.
I thought it would take 10 years to recover what I had lost. I regretted having so much in stocks, instead I wish I contributed the minimum and used the rest of my surplus funds to pay off my rentals. Every month I invested was another month of losing money.
In 2010 and 2011 it was “obvious” to buy a home. The federal government was giving out $8000 in tax credits to stimulate the housing market. Ask anyone who bought in those years, they lost more than the tax credits due to falling prices. In some markets they lost the tax credit and their down payments when their house dropped in value more than 20%.
There is always opportunities in a well diversified portfolio.
When I experienced my first bear market after the tech bust in 2000 I got scared and shifted into bonds, locking in my losses and waiting for a rebound. I got back in right after the market had rebounded 40%. That lesson taught me not to stop or lower my retirement contributions despite my losses. Instinctively I wanted to send extra payments to my “safe” investments of paying down my rentals. What I learned from my missed opportunities from my first bear market allowed me to seize on the opportunities from the second one.
Block out all the noise and not worry about where the markets are headed. (I have no idea) There are a lot more naysayers in this world (read the comments section in any Yahoo finance article) that will do absolutely nothing to improve their finances. A third of people despite the worst recession of our lifetime have less than a $1000 saved. How big will that regret be when they can never retire? How do we know in 10 years stocks today won’t look cheap? Homes bought today will be a third paid off that will cash flow for you, you’ll wish you bought five more.
Budget, earn more money and get off the sidelines. Aggressively save into all your retirement accounts. Save another 20% in taxable accounts, look for real estate properties. The most important thing is when the crash comes (and it will) you continue to contribute the same amount to each asset class. Don’t change your investing plan (shift more into bonds or cash, sell properties etc.) You will benefit from the rebound and be much farther ahead than the naysayers.
What is your biggest financial missed opportunity? What financial lesson did you learn?
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