After the passing of her husband, my grandmother inherited a sizable estate.
She had seen the success of the stock market in the eighties and, with this windfall, thought she would try her hand at investing. Being a lifelong learner and hopelessly independent soul, she decided to forgo an asset manager and figure out this investing stuff on her own ... starting at age 65.
As her interest in investing grew, she set out to imbue me, her only grandchild, with some financial wisdom. While my parents were teaching me about money at home, their lessons were all rules: "You have to earn your money through chores,” and “You have to save up a long time to get that toy.” My grandmother, on the other hand, had the magical touch of a veteran kindergarten teacher. On our visits, she would teach me about money through stories, games and even when cooking dinner.
Although I was in the single digits when my grandma passed down her first money lesson, I fed off of her passion for years. In fact, when I was12, I told her I wanted to teach people about investing someday, too. She put her hands on my shoulders and told me that if she could do her career all over again, she would want to do that, too.
Now, even as a full-fledged adult and an aspiring financial planner, I still think of investing in much the way my grandmother taught me years ago. Below, I'll share five key lessons she taught me—both the ones she spelled out, and the ones I learned through watching her success. Here's hoping they inspire you too.
Lesson #1: Do Your Research
When I travel 300 miles to see my grandmother in Florida, we go grocery shopping. Grocery shopping, however, doesn’t start at the grocery store, or even by writing out the grocery list. For the entire week leading up to a grocery trip, my grandmother decides on a meal plan, searches for coupons, writes out her list, goes to the store, compares prices again and finally buys.
After returning from one such trip on a hot, sticky Gulf Coast afternoon, she took a minute to share some wisdom. “Before grocery shopping and before investing," she told me, "you should know why you’re buying, what you’re buying and if you’re getting the best price you can get.” Before investing her first dollar, Grandma spent months poring over a dozen investing books and checking stock prices and news in the Wall Street Journal. Ultimately, she bought a single share of a large-cap stock in a dividend reinvestment program that has, over more than 20 years, multiplied dozens of times.
Whether you invest on your own or with the help of a financial planner, you're best served by doing your research first. When you understand your portfolio allocation, your investment options, the market conditions and the performance history of different types of investments (while past performance can't predict the future, it's good to get an idea of how volatile stocks, bonds and mutual funds may be), you can set yourself up to make educated decisions and maximize your chance of success.
Lesson #2: Spread the Wealth
When I was about 10, my grandmother asked me to help her cook a family meal. She put the pot roast in the oven, boiled up some lima beans and had me shred some carrots for a salad. She mentioned that one of her investments was doing really well, and I asked her, “Then why don’t you put all of your money in that?”
“Do you think you could be healthy if all you ate was roast beef?" she replied. “Just like you're healthier when you eat a variety of foods, your portfolio is healthier when you have a lot of different types of investments.”
She knew that a healthy portfolio includes investments in different sectors of the economy with different levels of risk—from mutual funds to gold to savings bonds. Over the long term, some investments may do better than others, and spreading out your risk may counteract the effects of any investments that perform poorly. This is a basic investing principle called diversification, and my grandmother had it down pat.
In my investment portfolio, I aim to diversify by holding broad market index funds (which are inherently diversified into hundreds of companies), bonds, cash and a couple of riskier funds like emerging markets. I don’t claim to know which investments will perform well, but I feel confident that being exposed to a variety will allow for well-rounded growth through my retirement.
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Lesson #3: Be Patient
I used to visit my grandmother in Florida for a week every summer. During the typically Floridian daily storms, we would go inside her 7th-floor condo, sit in front of panoramic windows, and watch the rain and lightning roll in over Tampa Bay.
During one such storm, when I was about 12 years old, she turned to me and said, “In life, friendships, money and everything in between, you have to go through the rain to get to the sun, and through the boredom to get to the fun.” She was talking about patience, a virtue especially valuable when it comes to investing—weathering the ups and downs of the markets may yield the best rewards.
In other words, it may be risky to invest for just a couple of years, because those few years could be tough. But over time, when you hold your investments through the good years as well as the tough, those good years have the potential to counteract the bad. As an investor in mostly blue chip stocks, my grandmother has seen the stock prices hit record highs and record lows—sometimes within a year of each other. Over the 25 years she has stuck with the same investments, the stock market has averaged nearly 8% growth.
While I prefer to invest in broad market index funds as opposed to individual stocks, I take this long-term approach seriously. When I buy into an index fund, I know that it is money that I won’t touch again until I am retired, and I take that commitment seriously. I may rebalance my portfolio, but I am committed to seeing the investment through even the worst times.
Lesson #4: Start Small
My grandmother loves to keep house plants. She enjoys the daily ritual of watering them, tending to their needs and watching the flowers blossom. Although she hasn’t overtly given me a life lesson about her plants (yet!), I've clearly absorbed her method of teaching—and I realized early on that my grandmother’s investing philosophy is like gardening.
She planted little “seed” investments of $50 to $100 many years ago, tended to her investments with care and discipline and watched them grow and blossom over the years. She now enjoys the results of her hard work—both flowers and profits.
Many people are daunted by saving hundreds of thousands of dollars for retirement and think that $50 to $100 per month couldn’t even put a dent in their future needs. For that reason, they don’t even start. But just like my grandma grew plants from seeds, you have to start small. Once you start to save and grow your investment through attentive care, you may be able to create a habit and bank balance that enriches your life.
I started contributing to my Roth IRA when I got my first job in college. It was just a couple hundred dollars per year, but I knew that money would grow over time, and that 40 some years down the road, it would be meaningful.
Lesson #5: It's Never Too Late to Start
Truth be told, my grandmother didn’t need the money she invested. She had the blessing of a teacher’s pension and full Social Security benefits. Despite that, she never rested on her laurels or assumed that public funds would sustain her.
Instead, she started investing in her sixties with leftover money, growing a nest egg that can sustain her no matter what. She never believed that it was too late in her life to get started, too late to learn, or that she had missed out on the “good times.” Instead, she always believed she could figure things out on her own, and chose self-reliance.
I consider myself lucky that I had the knowledge and money to start investing early, but I’m not blind to the fact that some people aren’t able to do the same. Maybe they are burdened by student loan debt, unable to work due to a medical condition, or struggling to save for any number of reasons. But it is never too late to take control of your finances, learn how to invest wisely and potentially grow the money that you have.
What I learned from my grandmother, above all else, is to see investing the way she did—as a lifelong learning experience and a grand adventure.
Name has been changed.*
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