We all make mistakes.  Unfortunately, mine have cost me millions of dollars.  I’ve made them all, errors of commission and omission.  For a long time, I was the type of person who would repeatedly beat his head against the wall, thinking that the wall would break first.  Fortunately, I have matured and can now learn from the experiences of others.  However, many years of hard-headed trial and error left a pile of financial wreckage in my wake.

 

In this post, I will list the most expensive financial mistakes I have made chronologically and estimate their cost.  I will also explain what lessons I learned from my errors and what I could have done differently.  By exposing the financial wounds of my past, I hope you can learn from them and avoid them in your own life.  After all, the easiest way through a wall is a door.  All the years of head-banging just left me with a costly headache.

 

The Money Mistakes 

 

 1. In college, I invested $600 of my student loan money in the stock of a urology device company on a hot tip from my roommate’s uncle.  Of course, I lost all of it within a year.

 

This was gambling, not investing.  I was 20 years old and didn’t know anything about urology devices.  I didn’t have $600 to lose and didn’t understand how investing worked.  These were pre-internet days, so I invested over the phone with a broker and waited on paper statements.  All around, it was a bad idea.  If I wanted to invest, I should have put my money in a Roth IRA (I worked in college) and invested in an index fund.

 If I had invested in the Vanguard 500 Index Fund instead, it would be worth approximately $6,081 today (tax-free).   

 

 

money gambling

 

 

 

2. I waited until the final year of my ER residency to open a Roth IRA, and six months later, I was making too much money ever to qualify again.

 

Instead, I should have funded a Roth from the minute I started residency.  I could have made three years of contributions instead of one.  This would also have helped me with the discipline of monthly investing and likely opened my eyes to the world of personal finance sooner.

  If I had maxed out my Roth IRA in 2003 and 2004 and invested in VTSAX, I would have $36,915 today (tax-free).   

 

 

3. I opened a SEP IRA instead of a Solo 401k, which later made me unable to do a backdoor Roth.

 

 

The Solo 401k began its current form in 2002.  I started my SEP in 2006.  However, I wasn’t aware of the ramifications of my choice until much later, probably around 2018.

 

 If I had performed Backdoor Roth conversions starting in 2018, I would now have $43,070.  However, I was already investing in a Brokerage Account, so the only benefit to my net worth would be the tax savings of $15,936.  

 

 

 

 4. A work colleague referred me to a financial advisor in 2006 who charged assets under management (AUM) fees.  I stayed with him for nine years, receiving below-market returns and paying hefty fees.

 

 

I should have hired a fee-only advisor who charged for advice without an AUM fee.  When I started working, investing in a simple 2-fund portfolio consisting of 80% VTSAX and 20% VBTLX would have been easy.

 

I will calculate the estimated loss for this mistake together with #8.  

 

 

5. My financial advisor convinced me to purchase a $1,000,000 Variable Life insurance policy in 2007.

 

Invested $50,000 initially and $25,000 in 2008.  Today, the surrender value of the policy is $77,861.  I should have purchased a million-dollar, 30-year, term life insurance policy in 2007 and invested the money in the 80/20 portfolio instead.

 

If I had done so, I would have $298,125 today (minus the money spent on the policy premiums and the surrender value).     

 

    

 6. For a decade (2008-2018), I exclusively invested in individual stocks in my personal brokerage account.

 

I should have invested in index funds, as I knew nothing about the individual stocks I was purchasing and had no interest in learning.  For every winner (APPL, BAC, BRK.B), there have been losers (LINE, PBR, RIM).  Unfortunately, I didn’t even know what an index fund was at the time.

 

I could not figure out how to properly estimate the cost of this mistake.  E-Trade doesn’t allow you to access records from that long ago.  I have also bought and sold many stocks over the years.  However, I have no doubt that I would have been better off with passive investing.  

 

 

 

7. In 2009, when I was single and lived alone, I bought a 4300 sq ft house.

It had a pool, four bedrooms, five bathrooms, two living rooms, and a game room with a pool table, dart board, and beer pong table.  I had some epic parties there, but mostly, it sat empty while I worked.  I had rooms I didn’t go into for months at a time.  Fortunately, my wife convinced me to sell it in 2016 as she didn’t want to have small children around a pool.  Five of us now live comfortably in a 2500 sq ft house.

 

Although I made a profit selling this house, I could have invested the down payment and interest payments into an 80/20 index fund blend if I had remained in my starter home.  This is another difficult one to calculate, as I reinvested the down payment, equity, and profits when I sold the home.  Additionally, I would have had to rent a home for my mother as she moved into my starter home.  Putting it all together, I estimate this house cost me $387,465 in net worth today. 

 

 

financial mistake

 

 

 

8. I transferred my SEP and managed brokerage account to another financial advisor, who also charged AUM fees.

 

 

I left my money there for another five years, receiving below-market returns and paying hefty fees.

 

My ill-advised choice of investment advisors cost me dearly.  If I had invested the money into a conservative 75/25 VTSAX/VTBLX portfolio instead, I would have an additional $616,172.  This only included the money in my SEP, not the additional brokerage account.  

 

 

 

 

9. I should have purchased more stocks from 2008 to 2012.

 

 

I recognized there was a significant opportunity, and I continued investing in my SEP IRA.  However, I was too focused on real estate and my personal expenditures (see #7).  I sat on a lot of cash that could have been used.  It was definitely an opportunity wasted.

 I cannot accurately calculate the opportunity cost of this mistake, so I won’t try.  However, every dollar invested in the 80/20 mix at the end of 2009 is now worth $3.84.  

 

 

10. In 2013, I failed to buy more real estate in Austin, TX.

 

 I bought a few rental houses, agonizing over whether to pay $220,000 or $225,000.  The reason I didn’t buy more was because I thought the cash flow wasn’t quite good enough.  I could have thrown a dart at the city map and tripled my money on anything I purchased.

 Again, the opportunity cost is hard to calculate because I used the money for other purposes.  But any money I used to purchase houses in Austin then is now worth at least 2.5X unleveraged, plus the cash flow.  

 

 

real estate investing

 

 

11. I brought in a “money” partner to a business I started in 2014. 

 

 

This was a decision based on fear.  I already had an “operational partner” and was trying to protect myself by raising some capital.  If I had understood risk better, I would have realized the potential downside was less scary than I imagined.  The upside I gave away has been tremendous.  I now know that any potential partner must bring more to the table than money.

 This was the most expensive decision I have made, costing me an estimated $4,054,832 before taxes and investment returns.  After those adjustments, the number is $3,730,235.

 

 

12. I invested in oil exploration after a friend who had experience in the field expressly warned me not to.

 

I made an initial small investment that went well and continues to provide income today.  However, then I made two larger investments in different projects that haven’t done as well.  One was a total loss as the well became flooded and couldn’t be fixed.  We’re about five years into the other and haven’t drilled yet for a variety of reasons.  I was warned these types of investments were risky, but I didn’t listen.

 My estimate of the amount I have invested and how much it would be worth if I had invested in the 80/20 index portfolio instead is $347,403.  

 

 

 13. In 2016, I lost $35,000 on a failed private business investment advertised as “the Uber of Emergency Medical Staffing.”  Really.

 

 

There is a method for investing in private businesses, and I should have followed it.  Angel investors evaluate many companies and spread their money around over 10-12.  They expect most to fail, but the winners win big, bringing up the returns for the overall portfolio.  I invested in a few companies I did not research well, having no experience in angel investing.  As you can tell by this list, I lost on them all.

 If I had invested in the 80/20 portfolio mentioned above, I would have $62,753.

 

14. I lost $75,000 in 2018 in an investment scam.

 

I wrote a guest post about this debacle for a very popular website, which will be published soon.  Subscribe to Business is the Best Medicine so you won’t miss details of this exciting development!

 

Using the same 80/20 stock/bond mix, I would now have $110,998.

 

 

Fraud

 

 

15. My urgent care company lost a million dollars on a failed expansion attempt.

 

I have a post about that story coming soon, so I won’t go into details.

I have partners, pay ordinary income taxes on business distributions, and the losses came over time.  So, I estimate the present value if I had taken the distributions and invested the money to be $393,076. 

 

 

Lessons Learned from my Financial Mistakes

 

If you are keeping track at home, the mistakes I can quantify have cost me an estimated $5,999,078 to date.  If you want to know why I write about business and personal finance, this is your answer.  Being ignorant of these topics throughout most of my life has cost me nearly six million dollars!  If I kept this theoretical money invested for the next 30 years at a conservative 6% annualized return, it would be worth $34,460,947.

 I hope that others can benefit from me sharing my mistakes.  The five most important lessons to take away from my errors are:

 

1. Start Early.

 Educate yourself about personal finance and investing as soon as possible, then invest as quickly as you can.  The sooner you start making educated investments, the longer compound interest has to work its magic.

 

 

2. Only Invest in Things You Understand.

 From individual stocks to private companies, investing in things I didn’t understand was always a bad idea for me.  In almost every case, it would have been better for me to invest passively in broad-based, low-fee index funds.

 

 

3. Business is Not Passive.

 

 While I have greatly benefited from owning private businesses, these have been within my circle of competence – medicine and medicine-adjacent companies.  These were not passive investments.  I have been heavily involved in the management of my winners.

 

 

4. Choose Partners Wisely.

 

 I love my business partners.  However, I encourage you to choose wisely, as you will be married to them for a long time if the venture is successful.  Be sure that you need each partner you choose and that everyone brings something to the table beyond money.

 

 

5. Take Calculated Risks.

 

If I had not taken calculated risks in business, I would never have had this much money to lose in the first place.

 

 Conclusion 

 

 

Obviously, no one is financially perfect.  We all make mistakes.  It would have been impossible to get to where I am today without making a few unforced errors, leaving this exercise more of a teaching moment than a lament over what I have lost.

 

Despite all my financial mistakes, I became FI in my mid-forties.  A high income helped, but so did hard work, a high savings rate, consistent investing, and entrepreneurship.  If I can make mistake after mistake, losing six million dollars along the way, and still come out ok, any medical professional can become FI.

 

Subscribing to Business is the Best Medicine is a great way to read about personal finance and the business of medicine.  You can learn from my mistakes (and my successes.  I promise I’ve done a few things right over the years, too!)  The Financial Vital Checklist is a great place to start.