Hindsight is great: bad investments

3/1/2024

My financial literacy journey really started in late 2015 when I got an email from a financial advisor at Northwestern Mutual. We ended up working together, putting up a savings and investing plan, and got to work. He recommended 2 mutual funds to me which I poured any spare money into. Fast forward to February 2021 and I sold these losers. Now we look back and see how bad these were and one reason he recommended them to me.

Enter: the financial advisor

My NM financial advisor got my email from a friend of mine. That friend had worked with "John" (made up name) and wanted me to benefit from his services. It turns out, that was how John would drum up more business. He got financial plans made for people, and then asked them to recommend 5 friends to him. John is no longer a financial advisor, he's a programmer/engineer. To this day, I still think he had the best intentions but was doing what he was taught by the financial services industry. In our first meeting I asked him: "You deserve to make money. How do you make money from me?". He answered honestly that 1) he gets a commission on some life insurance products he sells to me, and 2) he sees the long term potential of working with clients and making money off of them later as they grow their wealth rather than early on when they have almost nothing.

Because I worked for a mutual fund manager, John recommended that I buy the mutual funds offered by my employer because I would get them "for free". That means here is no load charges / commissions involved in buys or sells, as a special benefit to employees.

What mutual funds did I buy?

From 2016 to the end of 2018, I put all of my investable savings into two funds. After 2018, I started investing in other products but left these 2 to "grow" because I had been taught that I bought these for the long term so I should set it, forget it, and wake up in 30 years rich.

Well I'm glad I didn't wait 30 years to wake up and realize I was invested in losers.

OYMIX - $12,000 invested

PIYFX - $6,000 invested

Notice that OYMIX is 35% fixed income. A completely inappropriate allocation to low-risk investments for someone in their mid to late 20s with 30-40 years in their investing horizon. PIYFX was even worse with 48% fixed income and 38% cash!!

Opportunity costs

I finally realized what losers these were in February 2021 after having discovered the FIRE movement. I opened up my online account and realized that after 3-5 years of investing (since I invested over time, not a lump sum in 2016) I had an overall net loss of (-$500) between the 2 investments. I immediately sold those losers and moved my money over to Schwab where I invested in VOO (S&P 500). These days I invest in VTI (total stock market).

So what did I miss out on during that time?

Considering between 2016 and February 2021 when I sold, I had a cost basis of $18,500 (what I paid for my investments) and sold for a value of $18,000 (a loss of $500). If I had been invested in VTI instead, then in February 2021 my investment would have been worth $25,800. A gain of $7,300.

What if I had really "set it and forget it" and still owned OYMIX and PIYFX today? My investments combined would be worth $20,000, a gain of only $1,500 over 5-8 years. But if I had been invested in VTI instead, then today my investment would be worth $33,300, a gain of $14,800 over 5-8 years.

Do I resent John?

Mildly, but mostly no. John was doing what he was trained to do. I resent the financial services industry for making everything so vague and complex that we feel that we need a financial advisor. Most importantly though, I am grateful because John got me on the right track with actually knowing where my money was, what I was doing with it, planning for the future, investing, and taking control of my own personal finance journey. To this day I still credit a lot of my good habits to his guidance (though I don't credit him with my good investments).