From Cruise Ship Acrobat to Millionaire: Tess Waresmith’s Investing Journey
Tess Waresmith, a former cruise ship acrobat and shopping guide, transformed her modest savings into over $1 million in investments. Her story is a compelling blend of diligent saving, shrewd investment decisions, and hard-learned lessons about navigating the financial world. This article delves into her journey, highlighting crucial takeaways for aspiring investors and exposing common pitfalls to avoid. It emphasizes the importance of financial education and the danger of blindly trusting financial advisors without possessing fundamental knowledge.
Key Takeaways: Investing Lessons from Tess Waresmith
- Financial literacy is paramount: Don’t rely solely on advisors; understand basic investing principles before making significant financial decisions.
- Beware of high fees: Excessive fees can significantly erode investment returns. Choose low-cost investment options like index funds.
- Simplify your investment strategy: Avoid overly complex strategies; a well-diversified portfolio of low-cost index funds can be highly effective.
- Be wary of annuities: Annuities can be costly and may not be suitable for everyone, especially younger investors
- Actively manage your investments: Regularly monitor your portfolio and make adjustments as needed based on market conditions and your personal goals.
Educate Yourself: The Importance of Financial Literacy
Waresmith’s journey began with diligent saving during her three years working on a cruise ship. However, she soon realized that simply accumulating savings wasn’t enough; she needed to make her money work harder. Initially, she hired a financial advisor, a decision many experts would recommend. However, lacking basic financial knowledge, she unwittingly fell prey to several costly mistakes.
The High Cost of Ignorance
“It’s tough to identify red flags if you don’t have basic knowledge of investing,” Waresmith explains. “When I say basic knowledge, I mean reading one or two books or taking one course. You don’t have to have a Ph.D. in investing, but I didn’t see red flags because I wouldn’t have been able to recognize them back then.” Her advisor, unbeknownst to her, selected underperforming mutual funds, charging hefty fees that significantly impacted her returns. She paid over 2% in fees. The advisor charged a fee equivalent to 1% of her portfolio’s value plus an additional 0.25% for using their online platform. Some of the actively managed mutual funds had expense ratios exceeding 0.75%.
The Annuity Mistake
Further compounding the problem was the advisor’s recommendation to invest $20,000 in an annuity – a financial instrument typically suitable for retirees. “When I turn 60, I’ll get a couple of bucks a month,” she says, highlighting the poor timing and potentially significant loss of return on this investment. “It was a big mistake. No one should have sold me that.”
Keep Things Simple: The Power of Index Funds
After realizing the detrimental effects of her advisor’s suboptimal strategy, Waresmith took control of her finances and significantly simplified her approach. She terminated her advisor’s services and began directly managing her investments, focusing on low-cost index funds. This decision proved to be a turning point.
The Advantage of Index Funds
Index funds offer significant advantages. They aim to mirror the performance of a specific market index, like the S&P 500, rather than attempting to outperform it. While some actively managed funds manage to outperform the market, the majority don’t. According to Morningstar, over the ten years ending in June 2024, only about 29% of active funds outpaced their indexed peers. Index funds provide diversification across a broad range of stocks at significantly lower costs. “Index funds are a great way to get started and to understand the basics of the stock market,” Waresmith emphasizes, “to get your money invested in a really diversified, low-fee way.”
The Simplicity of Success
By adopting this straightforward strategy, Waresmith avoided the complexities and hidden costs of actively managed funds, allowing her investments to grow more efficiently. This shift underscored the importance of understanding basic investment principles and the potential dangers of relying solely on the advice of unqualified or conflicted financial professionals. Her success story is a testament to the power of informed decision-making, even within the seemingly complex world of finance.
Beyond Index Funds: A Holistic Approach to Wealth Building
While Waresmith’s success highlights the power of low-cost index funds, her wealth-building isn’t solely reliant on this strategy. Her journey illustrates other factors contributing to her success:
Diligent Saving and Consistent Investing
Her initial success started with a strong foundation of disciplined saving. Saving a significant portion of her income while working on the cruise ship provided the seed capital for her investment journey. Consistent contributions, even modest ones, over time, can lead to substantial growth through compounding.
Diversification Across Asset Classes
Her portfolio extends beyond stocks, including real estate investments, highlighting the importance of diversification to mitigate risk and potentially enhance returns. A diversified portfolio spreads investments across different asset categories, helping limit the impact of losses in any single sector.
Continuous Learning and Adaptation
Waresmith hasn’t stood still. Since her early investment missteps, she’s actively engaged in continuous learning, continually expanding her financial knowledge and adapting her strategies as needed. This ongoing commitment to education and self-improvement has been vital to her enduring success.
Waresmith’s Advice: Lessons Learned and Future Aspirations
Waresmith’s story isn’t just about financial success; it’s a powerful lesson in the importance of financial literacy, the dangers of unchecked reliance on financial advisors and the power of simple, well-informed investment strategies. She now uses her experience to help others avoid the pitfalls she encountered, offering guidance to those embarking on their own investment journeys. Her founding of Wealth with Tess reflects her commitment to empowering others with the knowledge and confidence to achieve their financial goals.
“Don’t be afraid to ask questions,” she advises. “Do your research. Don’t blindly trust anyone, even financial advisors. Your financial future is your responsibility, and it’s worth investing the time and effort to learn how to manage it effectively.” Going forward, Waresmith plans to continue expanding her financial education firm, hoping to make a real difference in the lives of others.
