I Was Ripped Off—And I’m Thankful

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There are very few rules that I live by. One of them, though? Never turn down a free lunch. So when six months out of college, a friend said he wanted to catch up and buy me lunch, I skipped breakfast and showed up hungry.

I still remember the place: a faux-Irish pub with dark wood and a roaring fireplace. It was great to see this friend, but his blazer and tie threw me off. I was expecting a casual meal and a few beers. But what began with the beautiful promise of free soup in a bread bowl ended with a medium-pressure sales pitch for life insurance and investment products. “By god,” I thought, my slow, twenty-two year-old brain churning. “I suspect this guy doesn’t want to catch up with me at all!” By the end of the lunch I had signed up for a Roth IRA, which I kept for about six years.

By the facts, this Roth IRA was the epitome of a bad idea, and the kind of investment account that present-day E.A. commits his life to educating against. Let’s list the strikes against it: sponsored by an insurance company, rife with bad investments, high fees everywhere, oceans of fine print, terrible web interface, no index funds.

When I got financial religion in my thirties and moved my Roth to a better company, my friend’s company took $400 in “early termination” fees. In short, this product was an insult to investors everywhere. But, being a twenty-something with zero financial knowledge, I didn’t know any of this at the time. I basically forgot about it—save the monthly withdrawal of $200 into the account.

[caption id="attachment_641916" align="aligncenter" width="640"]Source: Thinkstock Source: Thinkstock[/caption]

Despite everything, when I think about this event now 10 years in the past, I’m profoundly grateful that my friend ripped me off. Since I had no financial ambitions in my early twenties, I wouldn’t have invested anything unless someone arrived at my door the way that my friend did. When I finally moved the account, with disgust, to a low-fee index fund provider, it had amassed around $20,000. This was quite a bit more than the $0 I would have otherwise had. Where would this money have otherwise gone? Probably the same place the rest of it went in my twenties: bars, trips, dates, and tech gizmos. In this way, my friend acted like a personal trainer, taking a cut of money to force me to do something I wouldn’t have done alone. And despite relatively poor investment choices, my money still grew.

This brings me to another point: the downside of poor funds is often outweighed by the very fact of having money invested. Put another way? Bad investments often trump no investments. Since the market has historically risen, the most costly investment is sitting on cash. The first ten years or so of working life are often called accumulation years. This means that accumulating assets of any kind is more important than having a subtle strategy. And thanks to my friend, at least I was accumulating.


Once I got married and had a child, I began to worry about my lack of financial knowledge just as I also noticed my Roth IRA and 401(k) accounts becoming less and less puny. This is when I did the research and took control of my finances. Others will hire a financial advisor or use a low cost online advisory firm. At this stage, I’m playing for keeps. But in the early years, there were worse things than getting ripped off. Like wasting time looking for the perfect investment, or skipping investments altogether. My friend recently moved and we haven’t met up in a while. But next time I see him, lunch is on me.

Written by E.A. Mann. The views expressed herein are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities by FutureAdvisor.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results, and clients may lose money.  Past performance is not indicative of future results.

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