Saturday, March 15, 2008

First visit to Broker pays off with Everlasting Impression

Quite a few years ago, while in college, I took an engineering management course. One of the first projects assigned was to select a stock portfolio and follow it daily. This sounded great to me; I was eager to get involved in the stock market. We were expected to chart the results, calculate the return on investment and at the end of the year be prepared to discuss the performance of the stocks. Of course, we were doing this experiment with pretend money.

This was back before the days of the wonderful internet and so to chart the daily moves of a stock, it meant that I would need to subscribe to a newspaper or visit the library everyday. I was too frugal and broke to sign up to a paper and the library idea was way to time inefficient. Fortunately, another much wealthier student in the class subscribed to the Wall Street Journal. He stacked them in a massive pile in a corner of his dorm room for months and then one day at the end of the semester he waded through each of them to get his prices. He then loaned all the papers to me!

Anyway, to get help with the assignment, another student and I decided to visit a nearby brokerage firm. We had already decided that we wanted to research some engineering companies, but we needed to know what the transaction fees were for buying and selling securities. Now, remember this is also before discount brokers. Trading was expensive!

The broker was very receptive, even though we told him we only had play money. He showed us all around the office and pointed out that they had a direct link on a computer to a stock ticker! That was so impressive watching the ticker symbols roll by. I felt the energy; it was like we were right in the middle of the action. I thought it was amazingly cool to see other paying clients come in, sit down at the computer and check out their stocks. Someday that will be me”, I said to myself.

The broker gave us his schedule of fees. And when he heard our story and realized that we were only 20 years old, the only thing he could talk about was how great it was that we were starting investing so early. He went on and on about how getting in early was so important. He rattled off rates of return over the last 20, 30 and 40 years and something about compounding interest.

He was so caught up in getting started early that we didn’t get to talk much about how to research and select stocks! All of his talking and enthusiasm left a very deep impression with me. I was about to graduate with a decent engineering job and would have more money than I needed for basic expenses. I made a note to myself to invest that extra cash as soon as possible.

Would you believe that I never stepped foot into another brokerage firm after that day!? After landing a job, I subscribed to a financial magazine that had advertisements for mutual fund companies. That was the first I had heard about a company named Vanguard. I liked everything I read - low fees, no frills and solid performance. I mailed in my first investment to the S&P 500 fund, VFINX. That was the start of many more investments with Vanguard.

Why didn’t I buy stocks? Very simply - the fees. I couldn’t get over the high brokerage fees! Eventually, a few years later, discount brokers came on to the scene and I promptly signed up to buy individual stocks at more reasonable costs.

Even though I didn’t buy stocks right away, I have to give credit and thanks to that broker for being so persuasive and adamant about investing early because that has proven to be a key to achieving financial independence.

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