The Motley Fool You Have More Than You Think: The Foolish Guide to Personal Finance

The Completely Revised and Expanded Edition of the New York Times Bestseller That Focuses on Personal Finance for Every Budget — and Every Stage of Life
Taking control of your personal finances is the first — and most important
— step toward successful investing and a secure future. The Motley Fool You Have More Than You Think, now fully updated and expanded, provides guidance for anyone trying to balance lifestyle aspirations and financial realities. The latest edition of this Motley Fool bestseller covers topics such as:

• Getting out of debt...and into the stock market
• Turning your bank account into a moneymaker
• Using Fool.com and the Internet to learn about all things financial — from buying a home to getting the best deal on a car
• Saving enough to send your children to the colleges of their dreams

ISBN-13: 9780743201742

Media Type: Paperback

Publisher: Touchstone

Publication Date: 01-02-2001

Pages: 320

Product Dimensions: 5.50(w) x 8.50(h) x 1.00(d)

Series: Motley Fool Books

David Gardner learned from his father how to invest, and with his brother, Tom, started The Motley Fool in 1993 with a mission to educate, amuse, and enrich. Today, the Fool works to empower individual investors, reaching millions every month through its website, premium services, podcasts, radio show, newspaper column, and more. With Tom they have coauthored several books, including You Have More Than You Think, Rule Breakers, Rule Makers, and The Motley Fool Investment Guide for Teens. Tom Gardner learned from his father how to invest, and with his brother, David, started The Motley Fool in 1993 with a mission to educate, amuse, and enrich. Today, the Fool works to empower individual investors, reaching millions every month through its website, premium services, podcasts, radio show, newspaper column, and more. With David they have coauthored several books, including You Have More Than You Think, Rule Breakers, Rule Makers, and The Motley Fool Investment Guide for Teens.

Read an Excerpt

Introduction

Our Fairy-Tale World

Once upon a time there was a prosperous country called the United States of America. America had fertile land, sunstruck coasts, purple mountains, and a happy people. She sported free public education, expensive but effective health care, and high-speed data networks anyone could tap into with a computer and a modem. In America more than any other place ever, you could do and say what you wanted, and your destiny was largely — to an almost disturbing degree — in your own hands. In fact, despite the protestations of whichever political party happened to be out of power at the time, America was the envy of the world.

But there was one thing that Americans lacked. Despite their comparatively rich status, Americans had very little understanding of what to do with their money. Most would just spend it, all of it — and in many cases, even more than that. In fact, 70 percent of Americans carried around monthly debt on misunderstood little plastic devices called credit cards. Even those not seduced by these devices had a problem. Their instincts might have been right: Save the money and make it grow. But how to save it, how to make it grow, was something no one ever taught them.

It must have had something to do with their educational system. Their schools, particularly the best ones, focused on the liberal arts: languages, literature, history, philosophy, plus a little science and mathematics. But while some Americans were taught calculus before college, few were taught any of the elementary personal finance and investing terms that would make their lives so much easier after college. Easy-to-understand concepts — price-to-earnings ratios, discount brokers, index funds, depreciation, balloon payments — became instead terrifying (or terrifyingly boring) shadowy beasts whose names were to be spoken in whispers if they must be spoken at all. Pent up in their cages, the beasts remained forever inaccessible. It wasn't just the bars that kept these concepts caged — there was no formal education of any kind about money!

But what was it that most United States citizens worked the better part of their adult lives to obtain? What would enable them to buy the house, the car...or to retire, or to put their children through school? The irony was inescapable: Due to an oversight of the educational system, one of the few truly universal, commonplace, and important subjects — money — became the stuff of an exclusive ruling class of "financial professionals."

And most of these "professionals" had for decades clothed the subject in expensive garments: overlong and extravagant words, weighty tones, an air of exclusivity. The implication was that only a Wise man could make sense of it all. But should that have been surprising? Most of the establishment made its money by managing that of others. That was the whole business. Thus, the less that the United States knew about its money, the greater the business for its car salesmen, banks, insurance salesmen, stockbrokers, and financial planners. Indeed, the establishment had little incentive to teach anyone anything at all! As history had occasionally and unfortunately demonstrated, the greatest money was made off the greatest ignorance. Future historians needed to look no further than the government itself for proof, as one state government after another sponsored daily lotteries preying on the widespread lack of financial understanding.

Capitalizing on ignorance was all the rage, short-term game that it was. And the game's top players would indeed have been long-term winners if it hadn't been for one tiny little plot twist we intentionally haven't yet mentioned — the birth of online mass communication.

The birth of the Internet.

In July of 1993, from a small shack on the back of a nondescript residential property far removed from Wall Street, a little publication printed its first issue, bearing the improbable title The Motley Fool. Its goal was to educate, to amuse, and to enrich. Its name, alluding to Shakespeare's Fools, arose from the belief that truth often lay outside the bounds of conventional wisdom. The publication had its shtick, it had some decent ideas, and it had a terribly small audience...mainly family friends.

A year later, that same publication emerged from that same shack in newly hatched electronic form on America Online (AOL), and a small subversive movement had begun. Within a year, The Motley Fool became AOL's best-known site. At the close of 1995, Foolishness spread to an additional site, on the World Wide Web (www.Fool.com), whose audience and community of participants now number several million. We know the story so well because we were the guys who, way back when, were hacking away all night at our keyboards in that small shack.

But hey, what the heck was going on here?!

The answer was easy, but you had to know where to look. You had to look at medieval Europe, five centuries earlier.

At that time, it was another universal, commonplace, and important subject — religion (here, Christianity) — that had become an exclusive province. For centuries, a tiny but powerful elite clergy had been the exclusive interpreter of biblical stories and truths for the illiterate masses. And as is the case with our modern-day financial world, language then also served as a control. The medieval church wrote its documents and celebrated its Masses exclusively in Latin, a foreign language to most of its adherents, who spoke only their own local dialects.

That condition persisted until the development of the first great mass medium for publishing, in the 1430s: the Internet's truest technological ancestor, the printing press. Over the next century, Johannes Gutenberg's movable metal type ushered in a period of technological innovation, intellectual ferment, and social revolution of a type the world hadn't seen for more than a thousand years. Martin Luther translated the Bible into German; John Calvin and others did the same in French. Their efforts opened up new understanding and education for the populace, giving birth to what we today call the Reformation. The result? A new, open publishing standard diminished the church's power, following the democratization of its subject. The Bible found its way to the bedside table.

This should all be sounding very familiar, because the Internet is serving the same benign purpose today that the hand press did in the fifteenth century. (If the analogy interests you, flip to "Appendix I, Scribes? Meet Printers!", for some humorous further elaboration.) And don't expect any nice comments from the giants that the Internet is slaying, either! It's called revolution, dear reader. Let's fast-forward a few centuries and look a little deeper.

The French Revolution kicked off on July 14, 1789, when a Parisian mob stormed the now famous (and demolished) prison La Bastille. That day, a shocked King Louis XVI (who would lose his head three and a half years later) turned to his trusted Duke La Rochefoucauld-Liancourt and asked, "Is it a revolt?" The duke answered bluntly — and quite accurately — "No, sire, it is a revolution." Indeed it was, and is today as much as ever.

The world is changing rapidly, and as in the past, these changes favor you, the individual, not the entrenched establishment. That accords with the opinion of another Frenchman, the renowned student of America Alexis de Tocqueville, who asserted more than 150 years ago that America gets more democratic and egalitarian with every passing day.

So we are today perched at a crossroads between the Old World — where average people were kept in the dark about their finances — and a New World, in which we each now have the means to manage our money effectively. What's cleared the way toward this New World is a bulldozer of contributing factors that include greater distribution of educational materials, universality of corporate retirement plans, ubiquity of mutual funds, accessibility of investment information via the Internet, the popularity of investment clubs, the success of the discount brokerage industry, ongoing price reductions and improvements in personal finance software, and an increasing expectation among our younger generations that they'll receive nothing from (government-managed) Social Security. And about fifteen or twenty other reasons as well.

As Rabbi Hillel charged us, so we charge you with regard to managing your money: "If not now, when?" To which we add, if not us, who? In this un-Wise tome we'll have occasion to mention many people who'd like to manage or otherwise relieve you of your money. Unfortunately, in most cases they bring with them some basic conflicts of interest that put them at odds with your own greatest good. In fact, if you sometimes just stare long enough at the warm and fuzzy television ads put out by the financial services industry, you may begin to glimpse a huge gape-jawed monster lurking behind. "MONEY!" it roars, meaning yours.

Tocqueville was fond of pointing out that we Americans care a good deal about our money: "I know of no country, indeed, where the love of money has taken a stronger hold on the affections of men and where a profounder contempt is expressed for the theory of the permanent equality of property." So it's not just our voracious financial services industry that cares so much...it's all of us. OK, so if we do care so much about our money — which is often made to sound wrong or bad, when it needn't be — then it makes even more sense that we should be stewards of our own wealth.

Given the historical trends, the Internet's game-changing new rules, and the revolution that's occurring as we write, managing your own money is now easier and more rewarding than ever before. Indeed, we expect that the fairy-tale world depicted at the opening will increasingly look like most fairy tales — drawing off images of an antiquated past. America is waking and will never be the same.

In the tradition of all Motley Fool scribblings, what you now hold in your hands provides practical, simply worded, and systematic advice for creating your own successful approach to saving, spending, and investing money. No preexisting financial knowledge necessary. (It might even be a detriment.)

$20 Million Patience

The prologue ended, the music subsiding, the crowd in its seats and now becoming hushed, we begin our show with one simple premise. As it is with your life, so too with your money: You have more than you think.

Every dollar that you've saved, every penny in the pig, has a potential value far greater than you think. You might live in a worn-out shanty a stone's throw from railroad tracks, with no more than $250 to your name, but we're telling you that those savings hold more possibility than you think.

And maybe you'd say you don't know anything about — nor have any interest in — your money. Maybe attending to your credit card, bank account, or broker seems simultaneously daunting and petty. All those calculations of percentage points, interest payments, and growth rates leave your heart feeling cold, your mind in a dizzy somersault, your soul empty. Most Americans feel the same way — outmatched and thoroughly uninspired by the world of personal finance and investing. You'd be no different from the rest.

But even then, or particularly then, you have more than you think. For instance, you will derive far greater pleasure from understanding your finances than you might currently imagine. Take a second to ponder on something you really love in this world. Surfing? Mystery books? Ping-Pong? French wine? Long-distance running? The disciplines in each of these actually mimic those of basic money management. The joy associated with one can naturally transfer over to the other.

In the few hundred pages you have before you, we offer plain language, a smattering of basic mathematics, a few dozen gags, and the occasional random burst of common sense. These things compose the palette and brush we'll use to illustrate that you can succeed in achieving true wealth whether you're starting out today with $57 in your savings account, $500,000 in your brokerage account, or $77,200 in mortgage debt. True wealth isn't just about money, of course, though your money will be expanding, secure, supportive of your ideals, and probably more than you need. True wealth comprises also family happiness, cultural enrichment, the satisfaction of a job well done, and copious extra time to pursue your hobbies and interests. We'd be fools (small f) to promise you all these things here. But what we can state emphatically is that a secure financial situation makes each of these far easier to come by. And we do promise that this book will transform the toilsome, tormenting task of mastering your money into good, clean, energizing fun.

In fact, if by the end of The Motley Fool You Have More Than You Think you find that this is not the case — that we've bored you or confused you, or just generally let you down — we'll fall back on our standard Foolish recommendation, which is to encourage you to sue our multibillion-dollar litigating powerhouse of a publisher.

As mastery is our end, let us begin by studying the best. If you'd like to be the best softball hitter in your neighborhood, watch how Ted Williams swatted at a pitched baseball. If you want to be a filmmaker, Hitchcock's numerous classics await you at the corner store — why not start there? Today's great pianists grew up playing Chopin, Mozart, Brahms, and Beethoven for years. Fools that we are, we propose that this is the exact approach to take with your money.

In our search for a model, we stumbled upon a rather unlikely character. Our Chopin of finance wasn't a full-service broker, wasn't a big-name money manager on Wall Street, wasn't a self-proclaimed financial expert inking columns in the daily paper. She wasn't a man, either. And she was uncelebrated — no magazine covers, certainly, and in fact not even a single appearance on any of today's superabundant financial shows on cable TV. She was nobody, really. She was just an individual investor. In a financial world where Wisdom and celebrity are so closely associated, she was just a darn Fool. The notion that she, quietly investing on her own, might be the most expert would undermine all that America believes to be true about money. Here too, Pythagoras was right: To find truths, we must invert.

So, who is she?

Ladies, gentlemen, and Fools, meet Anne Scheiber, a New Yorker whose initial $5,000 investment in common stocks in 1944 steadily grew into $22 million by the time of her death in 1995. The only reason we ever heard of her is that in her estate she deeded all of her money to Yeshiva University in New York, creating a splash media event at her death. As the story unraveled, investors at The Motley Fool online tried to figure just how she could have ended life with a treasure chest befitting royalty. The answer lay in simple thinking and the power of compounded numbers.

Anne Scheiber's investment portfolio grew at an annual rate of 18.3 percent. Some years, she lost a bundle — between 1972 and 1974, her portfolio lost nearly half its value. In other years, she nearly doubled her money. But, all told, her money grew at that average yearly rate of 18.3 percent. Let's artificially apply a steady rate of 18.3 percent annual growth to her $5,000 investment, just to see what it looks like after one, ten, thirty, and fifty years:

$5,000 Portfolio Growing at 18.3 Percent per Year

Initial Investment
$5,000

After 1 Year
$5,915

After 10 Years
$26,842

After 30 Years
$773,593

After 50 Years
$22.3 million

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Table of Contents

Contents

INTRODUCTION

Our Fairy-Tale World

$20 Million Patience

Part I

YOU HAVE MORE THAN YOU THINK

You Have More Than You Think

And a Bunch of People Want What You Have

Surprise Them — Save It Instead

You Can Get and Keep More Than You Think

The Ten Most Common Financial Mistakes

Part II

INTERLUDE

Make Your Dog a Trick Dog

Part III

AN INTRODUCTION TO INVESTING

But Profit Off the Savings

Your First Investments

When Not to Invest

A Stock Primer

The First Federal Bank of Coca-Cola

Obviously Great Investments

Opening an Account

Part IV

AN INVESTING LIFE

Buy What You Are

Where Do I Fit?

Become a Partner

Getting Help Online

The Ten Most Common Investing Mistakes

Part V

BEYOND

Your First Few Months Investing

The Fourteen Things You've Learned Here

Quality of Life

Appendix I: Scribes? Meet Printers!

Appendix II: Books You Should Like

Appendix III: Open Letter to the White House

Glossary

Acknowledgments

Index Show More