Seven Lessons I Learned From Wall Street
Some life lessons, especially those around money, are like MasterCard declares, priceless. Working on Wall Street for over two decades taught me seven valuable lessons worth their weight in gold. They are:
1) Start saving young and be consistent
2) Hire experts when it comes to money
3) Not all firms are created equal
4) Every Advisor has a specialty
5) Size makes a difference
6) Timing has merit
7) Consistent communication is paramount
They are two ways to make money: earning wages or receiving interest on your invested money. The basics of having money include saving early and going big. The Rule of 72 is the best measurement to bring the point home. It is a simple tool that calculates how many years it will take for your money to double. For example, a planned conservative return of 6% divided into seventy-two will project your investment will double every twelve years. A $10,000 investment becomes $20,000 and then $40,000 and then $80,000. The longer you have to grow the money, the more you will have to spend later. Unfortunately many women will save for their child’s education and forgo saving for their own retirement. It is easier to borrow for college. No one lends money to retire. Be smart about where your savings dollars go and where they are invested.
The second lesson I learned was that it helps to hire an expert once you reach a certain investment threshold of cash. A good rule of thumb is $100,000. Before that amount, use websites such as Scottrade or E-trade. Hiring expert advice applies to attorneys, insurance agents and real estate advisors. Excellent guidance is worth every penny.
The third lesson was that many businesses were vying competitively for investment dollars. These included banks, large New York firms called Wire houses, regional firms, independent broker/dealers and insurance companies. Usually, the larger the firm, the more resources they had and the more they charged for their expertise. Be certain to ask what fees you are paying for yearly and/or an ongoing basis. Be on the lookout for scams. If it is too good to be true, it probably is. Typically, the more advice you get, the more it usually costs.
The fourth lesson is a well kept secret in financial circles. Every advisor has a specialty. He could be a stock picker, a portfolio manager of mutual funds, or a bond broker. Some simply use the company’s recommendations. What is important here is that you know what your broker’s specialty is and if it fits into your own investment policy. Be sure to ask and find out what your advisor does best. He will happy to talk about himself and his philosophies.
Size does matter on Wall Street was lesson number five. The highest performing advisors will have the largest offices and the title of Senior Vice President behind their names. Generally, under $250,000 of investable assets is not enough for them to want to take your call. Their favorites numbers range in the half a million dollar and up range. The more you have, the better you will be treated.
Some say that timing doesn’t matter but it can and it does. I learned lesson six when I started to read a reference for stock methodology called the Stock Trader’s Almanac. It is published every year. They have tips on the best times to buy or sell. They also provide a directory of trading patterns that can be very beneficial to the small investor who is just learning.
The final lesson working on Wall Street was about communication. When the markets started to tank in the fall of 2008, many advisors hid in their offices and watched CNBC. The number one reason clients left their advisors was lack of contact. Be certain you indicate how much communication you would like from your professionals. Be clear. It could be weekly, monthly or once a year for a review.
No matter what stage of investing you are in currently, get started, get motivated, and get reading. This is one area of your life that deserves some of your time. You owe it yourself to know the basics.