Biggest Financial Blunders

[Re3iRtH]

Sure. I did residency in island/coastal market. I purchased cash flowing real estate with low fixed-rate financing.. have been able to reinvest the proceeds and realized about $650K in equity in those properties. Few other passive investments.
Sure, you may say luck. But luck is rarely the only factor. Most people would have been busy "focusing" on their residency. And as a civilian, that would have been 9 years of effectively non-investable time.
I attribute this mini-success to having no debt, and a $70K med school and $100K salary in residency enabling me to make profitable investments. I actually had a really poor savings rate until maybe 2 years ago.
I did well in residency, if wondering

[Dont_know_mind]

q-school: The way I look at it, the CGT I would pay if I kept the property is zero and it continues to compound. So if I sold, the CGT is a cost, although not nearly as much as my marginal tax rate. Say, on 1M property, now worth 5M, the CGT would be on 4M and at the CGT rate. If this is 15%, then that is a near correction in itself. Perhaps things might correct 40% in a downturn but with transactional costs and CGT, I would be guaranteed 17-20% cost.

For the whole portfolio, the cashflow is essentially neutral, which means the properties yield very little. So the marginal tax from holding is near zero. The yield is minimal. On my current income, I don't need further income. So I am hoping that the properties will appreciate further.

The eventual tax from capital gains will be at half the rate of income tax, so I am better off waiting for capital gain rather than converting to an income producing asset with lower capital gains. That is if there is further capital gain which cannot be assured. Or if I stopped or reduced working to such an extent that my tax rate was low, then I would be better off cashing in and converting to an income producing asset. However, I don't think the properties I have kept have reached their potential, which is why I still hold them.

Tax issues aside, I think it was my having risk assets, sitting tight and doing nothing that generated most of the returns. And ironically, if I had done even less, I would be much better off now.

 

[VagabondMD]

I have not revisited this thread for some time but would like to make two points:

1. There is a big difference between serious blunders and not living a life of financial perfection.

Example, buying whole life policy requiring $50k per year, paying premiums for ten years, and then walking away and losing most/all for a missed payment or two at the end (if that is possible) and losing hundreds of thousands of dollars should be considered a blunder. Same as investing $100k in “friend’s” guaranteed return Ponzi scheme or buying the cursed house known by everyone to be built on the ancient Native American burial ground .

Not realizing that the movie, The Big Sick, could be streamed for free on Amazon Prime Video and renting it from iTunes for $5.99, like I did the other night, is just not being perfect (and probably excusable). Not maxing out 401k in residency, getting sold a VUL policy by your father-in-law, buying an expensive car (with credit) as young attending, allowing $5000 credit card debt to build up while in med school so you could take a vacation or two with significant other, lending a few grand to a spendthrift relative, paying full retail for Kuhl pants the day before they went on sale, etc. are all, in my mind, actions and behaviors of one who has not lived an ideal, perfect financial life, and all mistakes that I have made in the past. (I am still kicking myself two days later for not remembering that Big Sick is on Amazon LOL!).

Much of what I am reading here that is listed as blunders probably falls into the imperfection category, not the serious blunder category.

2. Monday morning quarterbacking, like not buying Microsoft at the IPO, not buying a New York City brownstone in the 80’s, not buying Enron puts in the 90’s, not taking job B over job A, and other decisions where the outcome is hardly a given at the time of decision but, in retrospect obvious, really does not even fall into the mistake category, IMO. And when you throw in things like “not marrying a billionaire heir(ess)* or not picking the Powerball numbers correctly, it’s really getting thick around here.

* I did know “a billionaire heiress” , the younger sister of a close high school friend, who was extremely wealthy (probably only multiple hundreds of millions in the 70’s-80’s, when we were friends). I sat next to her at a wedding in the early 90’s, when we were both single, and she was not the least bit interested in me. She went on to marry a “billionaire heir”, I later learned.

[jfoxcpacfp]

Vagabond MD wrote:

I have not revisited this thread for some time but would like to make two points:

1. There is a big difference between serious blunders and not living a life of financial perfection.

Example, buying whole life policy requiring $50k per year, paying premiums for ten years, and then walking away and losing most/all for a missed payment or two at the end (if that is possible) and losing hundreds of thousands of dollars should be considered a blunder. Same as investing $100k in “friend’s” guaranteed return Ponzi scheme or buying the cursed house known by everyone to be built on the ancient Native American burial ground ???? .

Not realizing that the movie, The Big Sick, could be streamed for free on Amazon Prime Video and renting it from iTunes for $5.99, like I did the other night, is just not being perfect (and probably excusable). Not maxing out 401k in residency, getting sold a VUL policy by your father-in-law, buying an expensive car (with credit) as young attending, allowing $5000 credit card debt to build up while in med school so you could take a vacation or two with significant other, lending a few grand to a spendthrift relative, paying full retail for Kuhl pants the day before they went on sale, etc. are all, in my mind, actions and behaviors of one who has not lived an ideal, perfect financial life, and all mistakes that I have made in the past. (I am still kicking myself two days later for not remembering that Big Sick is on Amazon LOL!).

Much of what I am reading here that is listed as blunders probably falls into the imperfection category, not the serious blunder category.

2. Monday morning quarterbacking, like not buying Microsoft at the IPO, not buying a New York City brownstone in the 80’s, not buying Enron puts in the 90’s, not taking job B over job A, and other decisions where the outcome is hardly a given at the time of decision but, in retrospect obvious, really does not even fall into the mistake category, IMO. And when you throw in things like “not marrying a billionaire heir(ess)* or not picking the Powerball numbers correctly, it’s really getting thick around here. ????

* I did know “a billionaire heiress” , the younger sister of a close high school friend, who was extremely wealthy (probably only multiple hundreds of millions in the 70’s-80’s, when we were friends). I sat next to her at a wedding in the early 90’s, when we were both single, and she was not the least bit interested in me. She went on to marry a “billionaire heir”, I later learned.

Click to expand...

Vag, I cannot resist commenting on this   - with the exception of paying $5.99 for a movie you could get for free and bad timing on a pair of Kuhl pants (whatever the heck those are), it sounds like you’re human just like the rest of us and you’ve made your share of financial blunders, too. Must admit, I’m curious about the FIL relationship after you canceled the insurance. How did that go?

[Hatton]

Johanna I had to google the Kuhl pants also.

[jfoxcpacfp]

Dont_know_mind wrote:

Zaphod: Loss is around 700k carried forward capital gains. There is a property we are going to sell next year to buy a commercial property, but this is in my wife’s name so unfortunately, we will end up paying CGT on that, despite the capital gains loss in my name. The properties that I could get a CGT for, I really don’t want to sell.

The way I look at it, it is annoying to have a capital loss there but I don’t want to crystalize any CGT to offset it currently as I still want to keep those assets and my gearing is relatively low still.

Click to expand...

Have you considered a section 1031 exchange to defer LTCG tax (possibly forever)?

[BladeRunner]

In 2006, my brother in law, a well connected New York City lawyer, approached family members with an investment opportunity. He was starting a company that was contracted to provide customer support for a new consumer product to be introduced the following year. We were offered the ability to buy stock in the company at a low price before the IPO. With 4 kids and no college education, myt family upbringing was solidly middle class small town America. My parents and brothers and sisters were able to invest in the company, but because me and my own family were overseas on a medical mission trip, I could not sign any of the documents needed to complete the investment.

It turned out to be a great investment for them. The stock climbed 10x within months.

The product introduced in 07 was called the Apple Iphone.

Ouch : )

 

 

[MedMO]

Buying a bunch of E*Trade stock during the online brokerage mania about 20 (?) yrs ago - it had already topped out.

[mitochondria]

ChristopherMD20, I have no easy answers.  I have become very unpopular by some in my family.  My father was (probably still is) a compulsive gambler when I was young.  My poor mother tried her best with 6 kids, but financial help from my father was very inconsistent.  As a result, bills piled up and eventually our home was foreclosed on when I was about 10 years old.  Fortunately for me, there was the Stafford Loan (Federal) program and Pell grants that got through undergraduate and medical school.  I was also able to work during the first few years of medical school to keep costs under control.  In any event, I come from a family with a pretty clear history of poor financial management.  Thus, I have plenty of examples that I can draw on with my family members on why I can't loan/give them money.

I've also done the "give my pretty good working vehicle to my sister to help her out" routine and got ripped off.  I paid to have the car tuned up and purchased 4 brand new tires for it.  It was in perfect working condition for a car with 60K miles.  The car ends up needing a repair within 6 months of me gifting it to my sister and she turns around and sells it because she can't afford the repair.  The song and dance never ends.  Just last week, my father sends me a Thanksgiving message wanting me to send him money because his car broke down.

At the end of the day, my wife will NOT suffer the same fate as my mother.  I'm not decreasing my wife's quality of life because I have irresponsible family members.  This is understandably harsh, but my financial ROI from my family members has been zero over the 23 years of my marriage. My marriage was placed under a lot of stress because of the constant demands for money from my family because they perceive us as being "rich".  I love all my family members and I continue to visit and communicate with them.  However, I do not loan them money and I can tell you that several of them are not happy about it.  It is not easy, but it is the path I have chosen to take...

[The White Coat Investor]

jfoxcpacfp wrote:

Vagabond MD wrote:

I have not revisited this thread for some time but would like to make two points:

1. There is a big difference between serious blunders and not living a life of financial perfection.

Example, buying whole life policy requiring $50k per year, paying premiums for ten years, and then walking away and losing most/all for a missed payment or two at the end (if that is possible) and losing hundreds of thousands of dollars should be considered a blunder. Same as investing $100k in “friend’s” guaranteed return Ponzi scheme or buying the cursed house known by everyone to be built on the ancient Native American burial ground ???? .

Not realizing that the movie, The Big Sick, could be streamed for free on Amazon Prime Video and renting it from iTunes for $5.99, like I did the other night, is just not being perfect (and probably excusable). Not maxing out 401k in residency, getting sold a VUL policy by your father-in-law, buying an expensive car (with credit) as young attending, allowing $5000 credit card debt to build up while in med school so you could take a vacation or two with significant other, lending a few grand to a spendthrift relative, paying full retail for Kuhl pants the day before they went on sale, etc. are all, in my mind, actions and behaviors of one who has not lived an ideal, perfect financial life, and all mistakes that I have made in the past. (I am still kicking myself two days later for not remembering that Big Sick is on Amazon LOL!).

Much of what I am reading here that is listed as blunders probably falls into the imperfection category, not the serious blunder category.

2. Monday morning quarterbacking, like not buying Microsoft at the IPO, not buying a New York City brownstone in the 80’s, not buying Enron puts in the 90’s, not taking job B over job A, and other decisions where the outcome is hardly a given at the time of decision but, in retrospect obvious, really does not even fall into the mistake category, IMO. And when you throw in things like “not marrying a billionaire heir(ess)* or not picking the Powerball numbers correctly, it’s really getting thick around here. ????

* I did know “a billionaire heiress” , the younger sister of a close high school friend, who was extremely wealthy (probably only multiple hundreds of millions in the 70’s-80’s, when we were friends). I sat next to her at a wedding in the early 90’s, when we were both single, and she was not the least bit interested in me. She went on to marry a “billionaire heir”, I later learned.

Click to expand…

Vag, I cannot resist commenting on this   – with the exception of paying $5.99 for a movie you could get for free and bad timing on a pair of Kuhl pants (whatever the heck those are), it sounds like you’re human just like the rest of us and you’ve made your share of financial blunders, too. Must admit, I’m curious about the FIL relationship after you canceled the insurance. How did that go?

Click to expand...

Kuhl is a Salt Lake based outdoor clothing company.

[MPMD]

BladeRunner wrote:

In 2006, my brother in law, a well connected New York City lawyer, approached family members with an investment opportunity. He was starting a company that was contracted to provide customer support for a new consumer product to be introduced the following year. We were offered the ability to buy stock in the company at a low price before the IPO. With 4 kids and no college education, myt family upbringing was solidly middle class small town America. My parents and brothers and sisters were able to invest in the company, but because me and my own family were overseas on a medical mission trip, I could not sign any of the documents needed to complete the investment.

It turned out to be a great investment for them. The stock climbed 10x within months.

The product introduced in 07 was called the Apple Iphone.

Ouch : )

 

 

Click to expand...

Had a student a few years back with a similar story.

Without betraying confidence his college buddies asked him to take some time of med school to help them develop their internet startup, he declined.

It wasn't Waze, Uber, or Grubhub, but it was something that now has nearly that level of influence on our internet daily lives.

[Eye3md]

When I was 38, a very good friend asked me to be a "silent partner" in purchasing a few businesses.  We were going to buy gas stations and an RV dealership. He was the CEO of a local medical group and everyone spoke glowingly of his "business mind". I knew him as a friend and had always trusted him for financial advice.

So, we purchased two gas stations (convenience stores) and the RV dealership. At the time, banks were just throwing money at people without much due diligence (it seemed like) so it was very easy for us to get 100% loans to purchase these businesses. The first year, no problems.  I did not make any money and was told this was because of the need to streamline processes. The second year, I was asked to invest $120k for expanded inventory.  I did. Not long after that, my friend quits his CEO job (making $175,000/yr) so he can "focus on the business". I was ok with that because I thought it was best he devote his time to these new business ventures......later, I would find out he had been fired. That year, surprise surprise, my partner reported he made an income of $120,000 to pay for his full time management of the business.

Long story short, after two more years, and another $100,000 of my money invested, he sent me an email saying "I've filed for bankruptcy and the business is all yours". Even though I had zero business experience and the plan was an investment for me that he was going to manage. Two days later, I'm sitting on the phone with the state lottery system saying they are owed $100k, a supplier of convenience store inventory who says they are owed $90k, an oil and gas company who is owed $80k, etc...after about four hours of phone calls, I find out my partner have never told anyone I existed and had not been paying the bills. I had to write out about $250,000 in checks from my personal bank account that day.  He was simply shifting money from one business to the next, to pay what he could, as the money came in. The rest of the money (profits) just disappeared into thin air (he stole it, most likely).

I hired an attorney and an accountant to investigate and guide me  also, put the businesses up for sale  my wife and I did the best we could trying to manage these two gas stations and the Rv dealership but it was sucking so much money out of our personal bank accounts  we simply could not be at each of the stores all the time, and did not have the experience  we finally sold them all, at a great loss, but the whol episode ended up costing my wife and I about $1.5M from our personal bank accounts over a 6 year period.  It was a very painful lesson to learn.

Fortunately, I make a very good income, but it still greatly impacted my savings/retirement plans and we are continuing to save aggressively to try to make up for those lost years where so much money was flying out of our accounts

Beware friends who ask you to be a business partner with them, no matter how long you've known them or how smart they may seem.

 

 

[nolamd84]

This one made me cringe.

Thank you for letting us (especially early career people) learn from your mistake. A family member of mine won't talk to his sibling anymore because of a financial blunder / joint venture. All this has the chance to go very well or go very, very poorly as you have highlighted.

 

[DMFA]

Eye3md wrote:

Fortunately, I make a very good income, but it still greatly impacted my savings/retirement plans  currently, my wife and I have almost $3.0M in 401k/retirement plans and cash on hand (emergency funds) and we are continuing to save aggressively to try to make up for those lost years where so much income was flying out of our accounts

Click to expand...

Just a testament to your otherwise good sense...had this happened to most folks, it'd be permanently devastating.  I hope to be in so good a position that a $1.5M loss is just another bump in the road.  Cheers to you for weathering that awful situation so well

[Kamban]

Eye3md wrote:

So, we purchased two gas stations (convenience stores) and the RV dealership. At the time, banks were just throwing money at people without much due diligence (it seemed like) so it was very easy for us to get 100% loans to purchase these businesses. The first year, no problems. I did not make any money and was told this was because of the need to streamline processes. The second year, I was asked to invest $120k for expanded inventory. I did. Not long after that, my friend quits his CEO job (making $175,000/yr) so he can “focus on the business”. I was ok with that because I thought it was best he devote his time to these new business ventures……later, I would find out he had been fired. That year, surprise surprise, my partner reported he made an income of $120,000 to pay for his full time management of the business.

Click to expand...

I have invested in a couple of startup that have not gone as well as I expected. I have learned something from it that I used to apply to cash generating businesses like gas station with attached convenience store or its sibling, the liquor store.

First have a proper legal agreement on the partnership, each person's share and contribution and how much is each person responsible for the loan. Make sure that the banking at a bank is done where you know the bank. Have statements come to you each month, no exceptions. You should have the option to check the transactions and balances online any time. A copy of the daily sales should come to you by email every day. A copy of the invoices should be sent to you whenever purchases are made. You won't have time to look at every daily report or transaction but even glancing at them and going through the monthly bank statement each month will give you an idea if there is funds as expected from the income and expenses. Have a quarterly meeting to discuss the income, expense and profits and see if it matches the bank records.

Any check over a certain amount should require your signature in addition to the manager / other partner for it to be valid. By taking precautions one can run a successful small business like a gas station, liquor store, laundromat etc. But leaving it to someone and not having any records is inviting trouble and embezzlement.