Investing

6 Things I Learned When I Inherited An Investment Account At 22

By Thursday, July 14, 2016

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Every now and then, TFD brings up the topic of “investing” which, if you’re like me — aka not an I-banker — flies in one ear and out the other. “Investing” is a very broad term: there is real estate investing (buying land and selling it at a profit), investing in the stock market (buying stocks and selling them at a profit), or investing in a company (like Venture Capitalists, putting up money for a company and hoping to get a profit). For this article, I’m discussing owning and selling stock on Wall Street with the aid of a brokerage company, which I became involved in completely by accident.

Think you don’t know anything about owning an investment account? Me too. When I was 22, I got an ice-cold bucket of Financial Reality dumped on my head. I was an Art History major just a week shy of graduating college when my mom handed me a checkbook from one of the “big five” brokerage houses. (That would be Scottrade, Charles Schwab, Fidelity, E-Trade, and Ameritrade according to Investopedia). Standing in the kitchen, my mom told me I now owned an investment account. Wait sorry — a what?? I was an Art History major from a small liberal arts college. I knew how to research paintings for my Art History professor and scan pictures of Medieval art on the computer. I didn’t do “finance.” Well, too bad: now I did.

I may not have a background in Economics, but I do have a background in Art History, and that means I know how to research like nobody’s business. So for the past four years, you could find me looking up investment terms and what-the-hell-is-an-IPO anytime I needed the answer to a question. I feel that I now have a good, albeit rudimentary, understanding of the workings of the stock market, aka Wall Street, aka “Big Banks,” aka the 1% (and all of the other scary, big terms our brains tend to shut off when we hear).

So, without further ado, here are six things I learned from my unexpected participation in the US stock market:

1. When I owned the account, I OWNED it.

Just me. No one else. The account was set up by my grandmother as an UTMA (Uniform Transfer to Minors Act, intended as a tax-free savings account for minors) when I was born and managed by my mother (as Custodian) until I was 21. “Custodian” means she watched the account for 21 years and panicked on my behalf when Wall Street almost collapsed in 2008. For reference, the “market value” of the account was somewhere around enough that, if I sold every piece of stock, I could buy a very small house in a small town somewhere in Middle America. The day I turned 21, my mother’s role as Custodian was legally terminated. The account then passed to my name as the legal sole owner. Legally, I should have been notified of the existence of this account in writing on my 21st birthday. In reality, it didn’t happen that way, which brings me to:

2. I also inherited an Investment Advisor.

The woman who currently manages my account was hired by my mother before I obtained ownership. Since I didn’t find out about the account until I was 22, I had no say in who managed it. I’m a person who always wants to know The Exact Name For Things, so I asked for her official title, and she said “Investment Advisor.” I did some more online research and found that an Investment Advisor fits under the broad term of what Forbes.com describes as “Investment Professionals.”

My Investment Advisor, the CEO of her own Capital Management Company, is different from a CPA, an Attorney, or a Certified Financial Planner. When I first found out that I owned the account, I didn’t know that I had the power to change Capital Management companies. Now that I’ve researched online, I understand my rights. I spent some time thinking and decided to stay at her company, because I like her and she helps me understand #stocks. She makes money by taking a commission on my total account value, similar a Real Estate Agent taking commission on a house sale.

3. The meaning of the fable “Goose that Lays the Golden Egg.”

Have you heard the fable about the Goose that Lays the Golden Egg? It’s a classic: A farmer has a goose that lays golden eggs. The problem: he wants all the eggs at once. So he cuts open the goose to get to the eggs. The goose dies. Now he has no goose and no golden eggs. The concept of the fable is the secret sauce/secret formula of every person who’s ever made money with stocks on Wall Street. When I keep my stock (the Goose) on Wall Street, the CEOs are happy and pay me dividends (the Golden Eggs definition: yearly ‘thank you’ dollars for keeping my money in their company). The dividends show up in the form of cash in my investment account. I can choose to either reinvest the cash, which means buying more stock, or transfer it to my normal checking account. When I sell my stock, I have no more connection to the company (aka the goose is dead) and I get no more dividends from that company (aka no more cash) in my account. It can be the less immediately-satisfying way to go about things, especially if you’re not used to the idea of having money in some abstract place where you can’t buy groceries with it, but it’s the better approach.

4. The cost fluctuates. Incredibly.

You may have heard the term “market fluctuation.” It’s not just a thing announcers say on CNN: it’s a real thing that I’ve experienced. Real example: One day, I logged onto my online account and saw I had $10,000 less than the day before. This was sort of terrifying. I logged onto cnnmoney.com for a little research. CNN explained that my $10,000 was gone — poof! — because Federal employees/politicians were talking about interest rate changes. This chatter was making investors panic and stock prices fall. The finer details were something I could grasp with more time and research. Long story short: because of decisions being made 2,000 miles away from me in Washington, the “market value” of my account went down $10,000 in one day. Luckily, the stocks “rallied” in the next few days, and the “market value” went back up to its former level. From my rudimentary perspective, that’s how the system works.

5. If I want to spend it all, I can.

But that means when it’s gone, it’s gone. As the owner, I can sell every stock and get cash in my checking account to spend on whatever I want, but then I have no stock. See next point.

6. I paid very few Capital Gains taxes this year — but that can change year to year.

Capital Gains Taxes are Federal Taxes paid when property (like a $150,000 house or $100,000 of stocks) is sold. Because of my age range (25-27) and 2015 employment income (under $25,000), I didn’t have to pay Capital Gains Tax on stocks sold in Tax Year 2015. I also sold some stocks in Tax Year 2016, but my employment income will be different in 2016, so I could see a charge for Capital Gains when my accountant gives me my tax return for Tax Year 2016.

*Bonus bullet point: I am now a true believer in the old saying: “Tell me and I forget; Teach me and I remember; Involve me, and I understand.”

Before and immediately after I learned about the account, my stocks sat all happy and safe on Wall Street. They were an abstract idea and I had little to no interaction with them on a daily basis. In fact, when my mom first told me about the account, I didn’t even know the value of the account because I never received my monthly account statement. The statement was addressed to my parents’ house instead of my own apartment.

My hands-off approach to my investment account changed when I had to quit my job for health reasons (depression and anxiety, for full #transparency). I decided to use the money to find the best treatments and providers even if they were outside my insurance. I think my parents would have preferred to support me with their own money while I recovered instead of me using the cash from the investment account; after all, the investment money was, in my mom’s words, a “nest egg” for my future. I get it.

I also understand that selling stocks is not a long-term financial solution. But here’s the way I see it: I would never have learned what it means to use (or not use) this account if I had never used it. On another note, I shudder to think what my health situation would have been if I hadn’t had the enormous fortune to see providers outside my network. The happy ending to this story is that I got the treatment I needed to be able to get back in the work force again.

With my knowledge gleaned over the past four years, I hope to continue to be involved with my investments, but in a more direct way. I’d like to open my own investment account with one of the Big Five, this time without an Investment Advisor. I want to be the one to buy and sell and decide if it’s a good sell or a bad sell. The one thing I’ll take away from this experience? Carefully weighing pros and cons, checking in with professionals, and following the needs that come up in my own life (not anyone else’s) means I can make my own #financialdecisions — even if I’m not a Finance Bro.

Isabel is an aspiring writer who blogs at www.isabel-howard.com and is an Architectural Historian by training. She gets really nervous about sharing financial stories but loves the feeling of community at TFD so she does it anyway.

Image via Pexels

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