Ed Bowsher reflects on the valuable financial lessons he has learned from The Fool.
This article has already been sent to readers as an 'Afternoon' email.
As we prepare to launch our new personal finance website, lovemoney.com, I thought it would be a good time to reflect on some of the lessons I've learned since I started working for The Fool in 2005.
Lesson 1: Steer clear of debt if you can
Too many people have taken on too much debt over the last few years. Some borrowed in order to spend, often against the rising value of their homes. Now they have to retrench as the availability of loans has dried up.
Others borrowed to build a buy-to-let property portfolio. Yes, many Fools have made big profits from buy-to-let, and I sometimes wish I'd played that game too. However, some buy-to-letters bought too many properties with too much debt and are now in deep trouble as property prices fall.
On a more positive note, I've also learned that it's possible to bounce back from a debt crisis. When I joined the company I started to read our Dealing with Debt discussion board. I read heartening tales of people with massive debts who were able to get back on the financial straight and narrow - with lots of support from other board users.
Lesson 2: Credit cards can help you fight debt
I used to see credit cards as things that get you into debt. And they can be.
But once I joined the Fool, I realised that cards could also help you get out of debt. Transferring your debt to a 0% credit card means all your repayments go to paying off a debt and not towards paying extortionate interest rates.
I also came to realise that credit cards can be useful financial tools in other ways. For example, cashback credit cards effectively offer free money!
Lesson 3: Too much debt is bad for companies
Before joining TMF I had worked as a journalist for a couple of other financial websites. Back then I was taken in by the conventional wisdom of the time - that successful public companies should carry a sizeable slug of debt. In fact, most City analysts disapproved of companies that had no debt.
That was because tax laws meant it was cheaper to finance a company by debt rather than by shares. So companies could easily boost profits by borrowing money and using it to buy back shares from the market.
There was only one drawback to this strategy. Heavy debts make a company more vulnerable when the good times end.
Lesson 4: The big insurance rip-off
In 2005, I was pretty ignorant about PPI or Payment Protection Insurance. (The idea behind PPI is that if you lose your job or become ill, the insurer will meet your mortgage or loan repayments.)
I quickly learned that if you bought PPI from your lender, your premiums would be way too high.
The Competition Commission now agree with us, and the banks will soon be forbidden to sell PPI when a mortgage or loan is taken out. That means borrowers are more likely to buy PPI from independent providers who tend to be cheaper.
That's good news, but do read the small print carefully when you take out a PPI policy. Sadly, some insurers will try their hardest not to pay out if you're hit by bad luck.
Lesson 5: Dividends are great!
I used to be a growth investor. I was looking for the next Microsoft or Dell (Nasdaq: Dell) - companies that would deliver stratospheric growth in the years to come. Trouble is, many `growth' shares don't deliver much growth in the end. In fact, a couple of my growth investments have proved disastrous.
Since I heard a talk by Jeremy Siegel at The Motley Fool in the US, I've focused much more on dividends.
In his talk, Siegel revealed that the top-performing stock in the S&P 500 between 1957 and 2003 was tobacco giant Altria (NYSE: MO), formerly known as Phillip Morris. Tobacco hasn't exactly been a growth business during that period, but the company has paid out chunky dividends year after year, and that has provided a great return for patient investors.
That said, dividend investing isn't without risk. We've seen in the last year that dividends can easily be cut or stopped completely if a company's profits falls or it goes into the red.
More to learn
So those are five lessons I've learned here. I'm sure I'll learn more over the next few years. Believing I knew everything would be very dangerous...