How I made, then lost, $1 million dollars

I got a slightly funny feeling the first time I hit $1 million dollars net worth. In some ways it doesn’t feel real. Its not like your life magically changed over night, its just a number after all. But on the other hand, its an important psychological milestone. You sit back in your chair for a moment and think to yourself “I can now call myself a millionaire”. This is my story of making one million dollars. And then losing it. And then making it again.

How did we make $1 million dollars?

The first steps didn’t start with a large inheritance or a lotto win or even a big pay cheque. It started with a small investment. Once I finished school, I was lucky enough to get a job that allowed me to work casual hours, including night and weekend shifts. These shifts paid well and I worked hard and saved my money. Quickly I was saving a few hundred dollars a week. More than just beer money.

The first $300 investment

I had always been very interested in the stock market, ever since my father had taken me to the Melbourne Stock Exchange trading floor. I took a few finance course during my degree (including getting a university prize for personal finance) and read every book, news letter and magazine on investing I could find.

At the end of my first year an university, I asked my grandmother to purchase some shares for me. I had been researching all types of companies, looking at broker recommendations and write ups in magazines. She had a small share portfolio, so she rang her stock broker (no internet trading back then!) and I invested $300 in a company called Pacific Dunlop. At the time, they were a diversified industrial conglomerate, with everything from tennis shoes, through to ice creams, car parts, hearing and condoms. Very diverse! And they paid a good dividend.

While, I’d love to say that that first investment was a 10X bagger, the sad truth is that I sold them a few years later for about the same price as I bought them. My analysis was off. Lesson learned. If its recommended by a broker in a magazine, its probably not going to be a 10x bagger.

Net worth drifted

After that small purchase, I continued to acquire small numbers of shares in various companies, eventually saving around $5,000. Not bad for a 20 year old university student.

However, I wasn’t settled, so like a lot of young people I sold everything I owned and set off to travel the world. My financial net worth? Zero. Life experience? Richest man in the world.

Acceleration to $100,000

I returned home to Australia in 1999 and got a “real” job. One with a suit and tie. At this point my networth was zero and for a while afterwards it didn’t really move very much. I saw still saving and investing, but tended to trade in and out of stocks too often, so lost a lot of upside. I had some savings in my retirement account (Australia has a system of compulsory retirement savings accounts), but no money in the bank.

The next step in becoming a millionaire was to generate good earnings. I did my accounting exams and became a chartered accountant. That choice allowed to to almost double my income every few years. Again, I saved hard and worked hard.

Between the start of 2003 and the end of 2004, my net wealth hit $100,000.

Pedal to the metal – $1 million here we come!

It was about this time that I got married to wife #1. Having two high incomes in the household made it a lot easier to save than a single income. Overall costs are lower and there is more surplus cash.

In early 2005 we had an investment property that was initially worth around $280,000. A nice little apartment on the harbor in a grungy part of Sydney. Wife #1 was also fortunate to set stock in the company she worked for, which went up dramatically. At that point we were worth around $240,000 with 2 kids.

Over the next few years, we worked very hard, saved some and invested more in the stock market and paid down our investment property loan. But we also made our fair share of money mistakes. A professional couple with 2 young kids, making high incomes can spend a lot. New cars, new clothes, overseas holidays. Unfortunately, it was about this time that I realised that we were polar opposites when it came to money. I saved, she spent.

Even with this marked difference in attitude, we were making so much money that our net worth couldn’t help but go up. But it was buying a house that rocketed our net worth above the $1 million mark. We purchased out primary residence in early 2006, also taking on a very large mortgage. Over the next few years, we were lucky enough to have it increase in value by 30%.

Out investment property also went up in value a lot. Rising prices and borrowing is a very rewarding combination. Amazing what a big but of leverage can do to your net wealth!

Hiccup – the GFC cometh

speed hump
The GFC speed hump

The first hiccup occurred when the GFC hit. Around mid 2008 I was working in finance and saw first hand the destruction the GFC wrought across the world. Clients of mine blew up, stock prices fell and people I knew lost their jobs. Luckily for us, we both remained employed, but we did take a hit on our retirement and share portfolios.

Prior to 2008, we had around $100,000 in our share portfolio that had up till that point, performed quite well. Unfortunately, it was also leveraged, so as share prices fell, we started receiving margin calls. We pumped in cash into our share portfolio to reduce leverage. But its a pretty heart wrenching thing to put $10,000, only to watch up vanish as the portfolio makes another round of losses.

It went down every single day.

If you haven’t invested through an event like the GFC (and there hasn’t been one since), it is the most psychologically damaging thing you can experience.

Eventually, we sold out of all our share investments in March 2009. Almost to the day when the S&P 500 hit its all time low. Talk about great timing…..

The day we made it to $1 million

The GFC passed and life moved on. February 2011 was the tipping point. The day when we finally made it to $1 million net worth. We had re valued our home and our investment property back in July 2010, which added around $280,000 to our net worth. We hadn’t revalued out property in a number of years and several properties had sold in our street, so it seemed about the right value.

Losing $1 million

losing one million dollars
Like a frog being boiled alive

My marriage, at the end, was like being the frog being slowly boiled in hot water. I knew something wasn’t right for a very long time before the fateful day we split. Increases in arguments, not wanting to be around each other, the complete lack of sex, sleeping in separate rooms and that niggling feeling that your partner for life was having it off with someone else. Eventually it came to a head. We separated at the end of 2011.

When we split, I ended up with a lot less than half of $1 million. How did this happen if our networth was so high?

That’s the funny thing about valuing assets. Especially non-liquid assets like property. The value between what you think you can purchase it at and what you could actually sell it at varied widely.

Also, a lot of our assets were held in retirement superannuation accounts in our own name. Wife #1, who was older, had significantly more in her account than I had in mine.

Finally, I was emotionally done. I just wanted the marriage over and to get on with my wife. Could I have gotten more financially? My lawyers thought so. But I just didn’t have the fight in me anymore, so gave her what she wanted. I ended up with a lot less.

The climb back up

Coming back towards $1 million is never an easy thing. After getting my life back together again, there were a few years in the proverbial wilderness. During this time, my net wealth didn’t really go very far. I was making just enough to pay the bills and cover costs, with only a little bit of savings.

Then, at the end of 2013 I changed jobs and got a 50% pay increase (including bonus). This was huge and set my net wealth started to move in the right direction again. I was back to saving hard, investing hard and learning as much as I could about personal finance.

Then I met my wife and my whole world changed for the better. She thinks about money the same way I do and hates to waste it as much as I do. We bought our home in 2017 and set about raising our kids and paying down the mortgage.

Luckily, when we got together, she already owned an investment property. This meant we were part of the great Sydney property boom of 2014 – 2017, when house and apartment values doubled. Again, luck with property held us immensely. The value of our retirement accounts also went up hugely. We were generating +10% per annum growth rates and maxing out our contributions. This alone added $50,000 per year to our net worth.

We’re still not quite there yet. Redundancy put a slight spanner in the works. But it won’t be long before were back making good money and investing wisely.

Lessons learned on making and losing $1 million

What did I learn making and losing $1 million. Not surprisingly, some of the lessons too me down a well worn path, others were unique to me.

  • Its really easy to make money. Its also really easy to lose it. The first rule of personal finance should be, don’t lost money!
  • Divorce is expensive.
  • I am good at setting goals and working towards hitting them. If I decide to pay off a $10,000 loan, I pay it off in record time.
  • Spending all my money travelling in my early 20s was worth far more in life experience than any share or bond or savings account would have ever given me. Very Important!
  • Having a life partner who is committed to the same goals as you is vital. Without a common view on life, it’s never going to work.
  • I’m a risk taker. I am psychologically hardwired to seek a thrill from taking large risks with a large risk / reward payoff. Sometimes it works, sometimes it doesn’t.
  • Knowing I’m a risk taker, I have to structure my savings and investments so that I’m not tempted to blow it up.
  • Leverage works and it also kills. The stock market will have another 20%+ drop one day. Be prepared.
  • Finally – you are psychologically wired to buy at the top and sell at the bottom.

To follow along on our journey back to making $1 million and beyond, follow my net wealth reports. I also love reading other people’s stories – to read some of the best, GO HERE! AND finally, if you want to follow my net wealth, check me out on Networth Share.

Jim Smith

James Smith is a personal finance expert with over 20 years experience. He believe that money should not be stressful. By using the Stress Free Money pyramid it helps everyone achieve their financial dreams.

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6 Responses

  1. Steveark says:

    Have you ever estimated how much you lost when you sold out in 2009? I watched my $700,000 401K drop to $400,000 value in 2009 but I didn’t sell or move a single share and that $400,000 shot up to much more than a million by the time I retired. I expect to see something like that again in my lifetime, maybe two or three of them, but if you don’t sell then you don’t really lose a penny.

    • Jim Smith says:

      Around $50,000 I think. It wasn’t a huge amount because most of our net wealth was held in our home (like most Australians) but it hurt from a cash flow perspective. There was also the emotional pain of watching it go down day after day. I’m sure it will happen again. Its just a matter of time. Experience counts for a lot in investing. Agree that if you don’t sell, then you don’t crystallize your loss. But at the time it felt like investments were going to keep going down and down and down with no bottom. Very hard on the nerves.

  2. Cashflow Cop says:

    Wow! What a journey you’ve been on with lots of lessons on the way.

    With the FI blogs I usually read, I haven’t come across someone writing about using leverage to buy stocks. When you say you’re a risk-taker, you really do mean it. I definitely haven’t got the stomach for that, which I know is a strange thing to say because I borrow to invest in property and losses aren’t crystallised until sold. I guess the main difference is the margin calls and having to pump money in as the value drops?

    Thanks for writing it up.

    • Jim Smith says:

      Yep, that’s exactly it. Mind you, margin calls haven’t been a problem for 10 years, so I doubt many people remember what its like. I’ve lived through 2 market crashes. If you had leveraged from 2009 onwards, you’d be extremely rich today. In fact, if you want to know how the 1% made their money, it was by leveraging up and buying stocks. Will keep working as long as the Fed reserve keeps lowering interest rates to prop up the stock market.

      But, one day it will come to an end. I don’t know when that day is, but one day. In the meantime, party on!

  3. Hi Jim,

    I loved reading this write up about your life experiences and how they influenced your net worth.

    I’m aiming to achieve one million investment portfolio one day and reading through your story has felt like seeing what obstacles I may encounter on the way, which can be a lot.

    I attribute to myself to be a risk taker generally too. It’s good to see that as a such, investments in property are the ones that suit us better I would say (it’s just a thought that popped in my mind while reading), as the illiquidity prevent us from making emotionally driven mistakes.

    Your lesson are gold to me.

    • Jim Smith says:

      Thanks for the comment and glad I’m making a difference.
      The best lesson I’ve learned is to understand who you are as an investor and in life and build your strategy around that.

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