Oftentimes I get interesting letters in my email inbox. I thought I’d start sharing some of the more interesting ones.
Look for my response to this one in a later blog post. I thought this one stood well on its own.
I just read your piece on Bluff Magazine web site. You don’t know me, and I don’t know you, but I’ll offer a suggestion anyway. You’ll filter it as you wish.
Suggestion: Don’t lend money to friends. Don’t invest money with friends. Keep friends and money separate.
It’s not new advice. I didn’t come up with it. I’m sure if you spend some quality google time, you’ll find many people going back centuries who have advised this, and for very good reason.
Usually when there is a ubiquitous piece of advice like this, it’s not because people are talking out of their rear end. It’s because of millions of tough lessons learned over the years/centuries/millenia.
Not just friends, but even family members, end up never talking to each other again after a business venture goes awry. It’s just too much strain on human relationships to mix money and friendship (let alone family). And it totally clouds judgment. Instead of making an objective, arms-length analysis of an investment opportunity, or the credit-worthiness of a borrower, we let our friendship/kinship lead the way. Predictably, many of these transactions end up with lost friendships, permanently damaged family relationships, and of course, most directly, lost financial issues.
I’ve found the best way to handle this: “Sorry, nothing personal, but I never, ever lend money to friends. It’s just a rule I follow. I keep my money and my friendships separate, and both benefit from that policy.” (Obviously I’m not talking about lending a friend $10 for lunch when he forgot his wallet, if you know he’ll pay you back tomorrow. If he doesn’t, you learned a lesson about him which might be worth $10. And sometimes lending small amounts to family members is also different, depending on their track record; travel at your own risk. Let experience be your guide. Enabling deadbeat siblings, for example, isn’t doing them any favors. I have a cousin who wasn’t a deadbeat, but had terrible business skills. His father and brothers loaned him money time after time for a business that kept struggling until most of his father’s life savings were gone, he was in debt to everyone including the IRS, and he moved to another part of the country to start over. Children, when they’re young, deserve small helping hands. SMALL. But when they’re adults, no one does them any favors loaning/investing them money when no non-family member would. That’s a red flag. And if family members often don’t honor their debts, what does this say about non-family “friends?”)
My brother lost most of his life savings loaning money to a variety of people who stiffed him. The nicest, most generous guys seem to get stiffed the most.
My suggestion for investing money: Fidelity Investments. FSTMX. Fidelity Total Market Index Investor Class (if you have $100K to invest, you can go with Advantage Class, which has slightly lower fees.) This invests in essentially the entire U.S. economy. Way more, even, than the S&P 500. You’re not trying to outsmart the experts by picking stocks. You invest in the USA and just forget about timing the market and picking stocks. 30 years from now you’ll have a huge pile to retire on. Fees are extremely low. If you want to diversity into bonds, gold, short-term money market funds, whatever, you can do it there. It’s clean, available onlline, safe (insured), and you can keep your investments and your friends separate. You’ll hang onto both of them a lot more successfully this way. (I don’t work for Fidelity or anyone, for that matter. I’m 62 and retired.)
Not sure why I felt compelled to spend 10 minutes writing to a stranger. I guess you seemed like a real nice guy from your post; maybe you’re an axe-murderer, but it didn’t seem that way! Thought you could use this alternative viewpoint. It might save you a few hundred thousand dollars over your lifetime, and dozens of friends too. And by the way, I agree with your assessment of gamblers. Even if I often broke the rule of loaning to friends, which I don’t, I would underscore and print the rule in red when it comes to gamblers. Even supposedly successful gamblers. Grab your wallet and RUN AWAY!