Retirement Investing: How To Increase Your Portfolio By $500k

Ulli Uncategorized 2 Comments

CNBC recently reported that Bear Stearns has told investors in two hedge funds that speculated in subprime mortgages that the funds are now essentially worthless.

Hmm, while the final numbers still have to be compiled, essentially that means that the investors have lost their entire investments. Gone! 100% loss! Out the window! Down the drain!

This reminded me of an informal research project I did a few years ago among some of my 50 something friends and acquaintances. My goal was to find out about their biggest blunders when it came to investing—investing in any kind of asset.

The answer was surprising. It turned out that the biggest losses were not obtained by picking a bad stock and holding it too long, or selecting the wrong kind of mutual fund. On the contrary; the biggest losses came from investing in newly formed companies with the promise of an imminent IPO and the subsequent riches to be derived from that. Others invested in companies with a hot new product in the developing stages, which never materialized.

In other words, had these people invested in listed financial products on the stock exchanges, and not given up control of their money, they would have been in better financial shape at this time and most likely would have avoided losing 100% of their investments.

So, how much did they lose? Based on my computations, the average 50 something lost $125k on various ventures! While most of them were not hurt by these poor choices, it’s still a large amount to part with. If you had this money available and compounded it conservatively for 20 years, you’d have in access of $500k.

The lesson learned is that, if you’re on your way to investing for your retirement, and don’t have outright risk capital available, stick to the financial markets. Even making a mistake here and there may not nearly be as devastating as a 100% potential loss in an illiquid venture, where greed can easily overwrite common sense.

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Comments 2

  1. Ulli,

    I myself am guilty of taking a few of these “flyers”.

    I once invested in the start-up stages of a bio-metric (fingerprint processing) security firm hoping that they would benefit from Homeland Security contracts. No such luck.

    And then there was the voice-over-internet-protocol outfit in which I personally knew the founder/CEO and I was hoping they would eventually be bought by Vonage. Then Vonage went public and promptly went into the tank.

    Notice the word “hoping” in both cases?

    I’ve learned my lesson and have “graduated” with honors from the world of speculation.


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