In Praise of Investing Mistakes

For blogger J.D. Roth, an early loss worked out for the best.

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Last year, I interviewed Get Rich Slowly blogger J.D. Roth, who writes candidly about paying off debt and managing his money. At the time, he also shared one of his biggest investing mistakes. He put almost all of his 2007 Roth IRA contributions into Sharper Image shortly before the company filed for bankruptcy, which meant he lost around $3,500.

I caught up with Roth to ask him what he learned from that debacle and what investment strategy he follows now. He says:

I haven't actually made any investing mistakes in the past year. If anything, I've only made the right moves. I did deposit several thousand dollars into my retirement account at the end of September -- just before the stock market crash -- but I don't consider that a mistake. It was the right move at the time. An even better move, if I could have done it, would have been to buy in once the market was down. That's exactly what I wanted to do in early March of this year, but I didn't have the resources to do it. I bought in as soon as I could (early May), but I really wish I could have added shares of my index fund on March 9th. That day was rough for me -- not because my retirement contributions from last year were cut in half, but because I couldn't add anything this year!

After being burned by picking individual stocks, I'm focusing almost exclusively on index funds: bond funds, stock funds, and I'm even looking at a REIT fund. So far, all of my investments are in retirement accounts -- I max them out every year -- but because I've managed to get out of debt, I do have spare cash flow. I've actually been thinking about creating a budget, and if I do, part of that will include "extra" money for investing outside of my retirement accounts.

Most of my money is currently in FFNOX, which is a Fidelity index fund that has 55 percent in the S&P 500, 15 percent in an extended market fund, 15 percent in international stocks, and 15 percent in a bond fund. I'm also looking to add more to a bond fund outside FFNOX because my age and risk tolerance make me want to have more fixed income. I'm not in a huge rush, though, because I think the stock market is relatively low and likely to increase, but I do want to get that balance locked in by the end of the year.

Roth's experience shows that you can recover from a catastrophe like putting all your money into a bankrupt company. In fact, it may be that lesson that helped him weather the rougher storms of the latest financial crisis.