Bad investments, we’ve all made them. Maybe it’s something
you expected to appreciate in value – like real estate or a stock. Or maybe
it’s something you just thought you really needed, but don’t use – like a bike,
a watch, or home exercise equipment. Because we made this purchase there is ego
and pride attached to it. Our ego tells us: “Just wait until the investment turns
positive.” or “I’d sell it, I just can’t get back anywhere near what I put into
it.”
If that sounds like you, you’re giving yourself the worst
possible advice. In addition, you’re wasting your time and headspace worrying
over something that you should just do something about.
Easier said than done right?
I’ve been following a few pieces of good advice that I wanted to
share:
- You don’t need to make it back the way you
lost it.
- If you can’t afford to lose it, you can’t afford
it.
#2 has been a driving force behind my decision making for a
few years now, I’ve internalized it and I love it. But #1 is a harder lesson to
learn.
So… here’s a story about getting out of a bad
investment (aka an older Mr. Go cleaning up a mess made by a younger Mr. Go).
A brilliant 25 year old Mr. Go, with
plenty of disposable income, decided to buy his lovely bride to be a $10,000
engagement ring. Impressing people was important, and surely a ring of this
value would make him look like a total
douche badass. So he wrote a check
and the ring was his. It was custom designed by a jeweler with a 1ct round cut
diamond (that sat up so high it would conveniently rip shirts and scratch
people). The jeweler wrote an appraisal for the ring and valued it at $14,500. What a great investment!
 |
| Bad investment on left. |
What if the ring got lost or stolen? Easy, personal property
insurance can cover that; it’s only $9 a month. Mr. Go purchased this ring in April
2010.
Now comes the part in the story where I started thinking
more thoughtfully about my future, using my resources to spend time with
loved ones while I still can, having a kid and toning down my focus on work.
As my family has continually downsized our needs and simplified our
life, there isn’t a lot of superfluous spending. And when something is
purchased it always passes the test of advice point #2 and also “Will this
purchase improve the quality of our life?” The flip side of the latter
question is, “Would getting rid of this reduce the quality of our life?” Mrs.
Tell’s answer, in the case of the ring, is a simple “No,” the ring does not add
any happiness to her or my life.
But for me, it was reducing my happiness. Every year I would
get this stupid premium bill for $109 to insure something I didn’t even want
anymore. It wasted much of my time and headspace thinking about what to do with
it. Do I stop insuring it and put it in safe? Do I sell it at a loss? Do I wait
for diamonds and metals to appreciate in value? Is there a market for used
engagement rings? What about the sentimental value?
It was time to take action. I submitted pictures, appraisals
and the GIA report to a few online diamond buyers to get an estimate on the
diamond’s value and the ring’s value. Diamond buyers were coming back with
offers around $4,200. The ring was only worth its weight in platinum plus the
diamond chips, so about $500. I accepted reality (remember advice point #1) and
took it to a local jeweler to negotiate a deal. We reached a deal where he
would buy the diamond and set a new diamond in its place.
I replaced the $4,200 1ct diamond with a $325 1/4ct diamond.
The jeweler told me that in 40 years of business he had never had anyone ever
come in requesting to downsize a diamond. I took that as a sign that: 1) I’m a
genius to realize a bad investment and get out of it, or 2) I’m a dumbass who
got himself into a bad investment (or maybe it's a combination of both).
 |
| 1ct left, .25ct right. What a deal! |
Now I should note, with a little expert negotiating, I
walked out of the jewelry store with a check for $4,700 and a 1/4ct diamond set
in the ring, making it the best offer I got anywhere else. But also noting that
the only person that lost (financially) in any of the transactions described
above, was me. If you’re interested in buying the diamond in this story it will
cost you about $10,000 dollars in this jeweler's shop.
What will I do with the $4,700 dollars? It will go into a non-retirement
investment account with every other dime I save (see
The No Hassle Approach to Investing). At an estimated 6% annual return I might make my money back on this
investment in 10 years. Oh, and over that 10 year period I’ll also save $1,090
in would-be insurance premiums.
There is probably a more sophisticated way to evaluate the cost
of this investment, but who cares. It’s a huge weight off my mind and I’ve freed
up headspace to focus on more important things. Life is great!
Mrs. Tell and I will be celebrating our five year wedding
anniversary on 4/21. I’m proud to say our love for each other has grown now
that our time is guided by thoughts and actions, rather than objects. And on a
side note, Mrs. Tell loves the “new” ring.
If you’re sitting on a bad investment, stop letting it take
time and energy from you, go do something about it.
