Not so long ago, I shared with you that I opened an RESP (children’s education fund) for my kids. I started investing in mutual funds mainly for two reasons: the first one was because I found $200/month wasn’t enough to buy stocks. I explained how it was a mistake in my recent article. But there is also another reason why I did this: because I find it difficult to manage other people’s money.
I really like to take risk and am comfortable having my portfolio move up and down. But when it comes to other people’s money, I find it harder to live with market fluctuations. I know that it is still my money being invested for my children’s tuition fees but I’m also aware this money won’t be used by me, it will be used by them. This is why I’m not too keen to build a 100% stock portfolio for them. I would rather build a growth mutual fund basket with 75% in stocks and 25% in preferred shares.
What Happened Back Then
When I was still a kid (read: in my 20’s), I was making lots of money from the stock market (during the years 2003 to 2007). I started with 20K leveraged in 2003 and “retired” from this strategy in 2007 to buy my second house. Luckily for me, I didn’t lose much in 2008 (I was -27%) since I used most of my money to buy a house the year before. But that was the nice part of my trading story. There is also an ugly part.
In early 2006, I entered into a position with a penny stock, a mining company called Northern Shields (NRN.V). Here’s what happened to my money:
I did some cost averaging and kept buying while it was going up. I was quite proud of my $5,000 position that became over $10,000 within a few months. Since I had so many successes in the past three years and was +71% in 2006, my mother asked me to put an additional $5,000 with me in this trade. I was super excited to show my mom how good his son was with money! A few months later, NRN was scheduled to report their progress in September 2006 and I had my lawyer’s appointment to buy my house in November. This was the perfect timing to buy a BMW with the profit from NRN after they announce they found what they were looking for and the stock hit $5.00 in a few days… Well, this was the scenario anyways!
This is what happened: I lost 50% of my money in a heartbeat. Before the loss, my average price was around $0.75/share, my mom’s was about $1.00. She lost $2,500 because of me and I was ashamed. The NRN report wasn’t very good and the stock plunged.
I Don’t Want to Lose Other’s People Money Anymore
This little story taught me that I shouldn’t take for granted that everybody has the same risk tolerance and is willing to lose money on a trade in penny stocks. I’m not trading those kinds of stocks anymore but I still have this bitter taste in my mouth. Sometimes, I would like to buy certificated of deposit for my kids just to make sure the money I save for them stays the same. I know it’s stupid at the same time as I at least need to protect my savings from inflation. Still, I’m afraid to manage this money for my children.
I will overcome this fear and start investing “their” money in dividend stocks shortly. But I will definitely pick blue chips with low risk for them! I will also be more nervous about this account, but in the end, I know it is the right choice to make; manage this money the way I manage my retirement fund!
Have you ever managed money for somebody else, how did it go?