Too Trusting

AFTER SHARING MY best investment in my previous post, it’s only fair that I follow up with my biggest blunder. I was 22 and working my first real job, as a high school English teacher in south Texas. Thanks to the job, I quickly kick-started my “adult” life: learning about health insurance, taxes and retirement savings.

A colleague introduced me to his brother, who worked as an investment advisor. We scheduled a meeting to talk about my retirement plan. He told me that I should supplement my mandatory contributions to the Teacher Retirement System of Texas with a retirement annuity. He assured me—quickly and authoritatively—that this money was guaranteed to grow over time, no matter what happened in the stock market. Furthermore, I could borrow against this money if I ever needed it. I asked a few basic questions, determined that he seemed trustworthy and had worked with other teachers, signed up and began contributing a portion of every paycheck.

A few months later, when I told my Dad about my smart move and showed him the annuity contract, he wasn’t as excited. He pointed out that the promised growth was far less than the stock market’s likely return over the next 30 years. He noted that the fees and early surrender charge on the annuity meant I had very little flexibility and would be earning even less than the promised amount. I felt ashamed by my decision and found myself arguing the advisor’s own points back to my Dad. After some debate, my Dad convinced me of his opinion and I had to admit I had made a bad investment.

I quickly pulled my money and paid the penalty. In the process, I learned three important lessons:

1. Don’t trust anyone who promises you that they can or will beat the market. If they can really do that, they would be rich and wouldn’t need your business.
2. Never immediately commit to a financial contract or decision. No one should make you feel pressured to sign right away. This is usually an indication that something is awry. Take your time and do your research. Usually, a simple Google search can help identify potential red flags and what questions to ask.
3. When making financial decisions, seek out people you trust, who have no conflicts of interest, to serve as your sounding board. Bounce ideas off them and listen closely, even if what they say is disappointing and doesn’t fit the narrative you’ve constructed. Your sounding board might be a financial advisor who won’t profit from your decision—or it could be a friend, colleague or parent who has some experience with the product or concept.

Zach Blattner’s previous articles include Land Grab and Five Trip Tips. Zach is a former teacher and school leader who now teaches teachers across the Philly/Camden region as a faculty member at Relay GSE. He is a self-taught finance nerd who dispenses advice to his wife, friends, family and anyone else willing to listen.

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