How a lot of people lost their life savings on a “sure” stock

GT Advanced Technologies (GTAT) was a sure thing.

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They’d just last year signed a contract with Apple to provide sapphire glass for a number of Apple products, and investors hoped among them was the new iPhone 6.

GTAT’s stock price jumped by a factor of 6.5x last year.past-year

You were a fool if you didn’t buy their stock, so many people did.

And two days ago they lost their shirts.

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Something went wrong — the iPhone 6 didn’t have sapphire screens after all — and GTAT filed for bankruptcy.  Trading was stopped as their share price plummeted from around $11 to below $1.

I’ve gotten into investing of late, by necessity. It’s a long story I’ve only touched on before, but I discovered this year that my dad’s broker did a real number on both dad’s and my IRAs. While everyone else’s retirement funds doubled in the last 4-5 years, ours dropped. (My balance went down even though I kept contributing money every year.)

Long story short, I learned a lot about investing, about the usury fees brokers charge you, and how even a 1% annual fee is enough to reduce your final balance at retirement by 28%.

And most of us are paying far more than 1% per year.

Not only are our brokers taking their fees — sometimes they’re annual fees, sometimes they take a percentage of each transaction (and that means buying and selling), and boy you should see how that adds up, dad’s last year alone took half of my entire IRA contribution as his fee — but they’re investing us in funds that also charge annual fees, and some even charge a fee as high as nearly 6% for the privilege of buying the fund.

Suffice it to say, you probably have no idea everything you’re being charged, and you have no idea how much lower your final retirement savings are going to be as a result.

But putting that aside for a moment, today I’m going to talk about gambling with your retirement savings — about putting it all in one stock. Because that’s what a lot of people did with GTAT, and they lost it all.

There’s a thread on the Contrarian Investor Forum that is a blow-by-blow of Monday’s bankruptcy announcement. It’s gripping, and sad, to watch people suddenly realize their life savings are gone.

What could they have done otherwise? One person suggested that the lesson learned was to make sure next time you invest in 3 or 4 stocks:

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Another had something similar happen before, and had learned the valuable lesson of only putting 25% of his life savings into one single stock:

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And another still can’t figure out what they did wrong:

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You don’t have to be Warren Buffett to understand the danger of putting all your eggs in one investment basket. The thing is, there was an alternative. It’s not very fun. It’s downright boring, actually. And they’re called index funds.

Index funds basically mirror an aspect of the market overall, and simply track it. The most popular one out there is probably Vanguard’s Total Stock Market Index Fund, one share of which contains a portion of 3,742 different companies, representing nearly the entire US stock market.

As the stock market goes the index goes. And not only have studies found that index investing tends to beat the advice of all the experts, but it’s also cheaper. I’m paying around $300 per year to have my IRA kept at Vanguard instead of the $6,000 I paid dad’s guy last year (and that doesn’t count the other fees I was charged by the various funds he had me in). So I’m already making $5,700 more per year, not a bad deal.

(That extra $5,700 will sock another $114,000 in my IRA. But it’s even better than that. If it grows at 7% per year over 20 years, that’ll add another $136,000. That’s $250,000 more I’ll have at age 70 because I ditched dad’s guy. This ain’t chump change we’re talking about.)

The topic is more complicated, and I don’t want to get into all of it in this post. But there is a better way out there than investing in individual stocks, and letting brokers rob you blind for “expert” advice that a cat can beat.

In the meantime, here are a few of the comments from that other thread, where people suddenly realize they’d lost their life savings. There really is a better way:

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There really is a better way.


Follow me on Twitter: @aravosis | @americablog | @americabloggay | Facebook | Instagram | Google+ | LinkedIn. John Aravosis is the Executive Editor of AMERICAblog, which he founded in 2004. He has a joint law degree (JD) and masters in Foreign Service from Georgetown; and has worked in the US Senate, World Bank, Children's Defense Fund, the United Nations Development Programme, and as a stringer for the Economist. He is a frequent TV pundit, having appeared on the O'Reilly Factor, Hardball, World News Tonight, Nightline, AM Joy & Reliable Sources, among others. John lives in Washington, DC. .

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