We have two sons. One is two years and nine months and the other is six months old. In the United States they have a brilliant tax free education fund for children where you can take a small portion of your monthly income and put it in a mutual fund for your kids. It starts off high risk and as the kids get closer to college age it eases down to low risk investments. As you know from previous articles, I don't live in the United States, but I am a US citizen. I looked into opening an education fund for my kids and it turns out that it wouldn't be worth it because of the fees of the program plus the fees to transfer money and convert it from my currency to dollars.

There used to be a similar fund where I live, however recently they changed the laws and this fund is no more. So what could we do for our children? I was looking into various alternatives.

Several months ago I took a financial class for women. It taught the most basic bits of finance. I have read several books on the subject of personal finance previously, but it's always good to learn more, especially since the books are mainly about how to handle your finances when you live in the United States. The man who taught the class also sells a mutual fund, but he isn't the type of business man who will sell you something he doesn't think you need. I called up "Mike" to ask him what to do with our son's money. I explained that it is for his education fund, we have such and such to put away.

Mike immediately said "Put all of your money into Teva now. It's one of the best run companies in the world and the stock drop will be temporary. Buy Teva and hold it." He went on to explain that the name brand pharmaceutical companies are trying to price their brand name products the same as generics in order to hurt Teva and take away their competitive edge. According to Mike there is no way these companies can continue to do this for very long, and Teva will go back up in value even higher than it was before once this price war is over.

I thought for the advice for a moment and then called my husband and told him to buy Teva. Why didn't I do any research? Well, I called Mike so that he could sell me a product, and while he owns Teva he doesn't make a profit from me buying Teva. He makes money from me purchasing my mutual fund through him. As such I figured he had no major agenda for his advice and as he is a financial advisor I would trust his advice rather than looking into it too deeply. It was me acting on a hunch, something I rarely do.

I called my hubby and told him to buy. How much he asked? I gave him a number only for him to reply, "That's all? That's nothing!" Hmmmm. "Ok," I replied, "buy this amount." (Two and a half times the initial amount I suggested.) "Ok," he said, and then hung up. (My husband likes to gamble in the stock market a lot more than I do.)

That is when it struck me. What the hell did I just do? This is a lot of money and the stock market is a gamble. One doesn't bet more than one can afford to lose. I just made a huge mistake and went against one of my own rules. I needed reassuring, so I called my best friend, whose husband happens to manage a mutual fund. "Jill" found my predicament amusing and gave me "Jack's" number to call and check that I did a wise thing.

Jack found my phone call hilarious. "She [as in me] who works in gambling is now freaking out because she put a lot of money in a stock?" Yes, and I explained what happened with Mike and the fact that I didn't research what I was doing before I did it.

I'm not against gambling in casino (internet or otherwise), when I gamble I don't worry about the money I spent. This is because I never spend more than I can afford to lose. The money I gamble with is my entertainment money. If I lose it my children will still go to college, we will still have a roof over our heads and food in our mouths. On the other hand, if I lose this money we won't be thrown out in the street, but there will be a serious dent in his education fund. This is a whole different level of gambling, a level I'm not comfortable with.

After several phone calls (another best friend whose husband is one of the biggest financial advisors in the country – she immediately asked me why we didn't call her and ask what to do with the money and after being scolded I admitted I simply didn't think of it) we were informed that we did make a wise move. Most likely Teva will go up and now that it's at a serious low we should be seeing it move up very soon. I slept much better knowing that.

This morning I finally got to my research. I went to Fool.com to start and I found a reference to the price war Mike mentioned in an article from June 26th. That article lead to another that told me I was doing the right thing. At the end of my research I was better informed and glad I went with my hunch. However, I'm still not convinced that what I did was the right thing to do.

Why?

Because at the end of the day we all need to be able to sleep. While investing in anything is risky (my mothers mutual funds when the dotcom bubble burst being a perfect example) one should only risk what they can afford to lose. If that means you won't make as much in interest then so be it, at least you will be able to sleep at night. Stocks are a gamble, and if you think they aren't, just remember WorldCom, Enron, and a dotcom bubble bursting.

Posted on: July 4, 2006

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