Tuesday, February 14, 2006

My Financial Bloopers

I have had the hardest time starting this post because I feel I have made so many mistakes along the way where do I begin? I decided to concentrate on the mistakes that I made because I was procrastinating, not paying attention and/or in denial (and I still had to narrow it down!). I follow up each blooper with the lessons I think I learned that apply to me personally. Each person is unique, so my version of the lesson may not be what you take away. Feel free to comment below!

Iomega Stock
A little over 10 years ago I spent $3000 to purchase 500 shares of IOM at $6. I knew nothing about investing and I probably didn't have $3000 to spare either. But I loved their products at the time and I took a naive plunge. This wouldn't have been so bad if I had actually watched the stock. It was my only investment and I really didn't latch on to a good way of monitoring it. I just *ignored* it. Completely. For six years.

I suddenly "remembered" I had the stock when I was looking to buy a house. Luckily I was able to sell for just about $6 and get my money back out, but in the mean time the stock went way up. I have no idea when I would have chosen to sell had I been watching the stock, but I am SURE I would have sold at some point in there and made SOME money (Zip and Jaz quickly lost their lustre once CD burners started showing up). The worst part is I probably was carrying credit card debt during this time. Double Whammy!

Lessons Learned:
  1. I should invest - outside of retirement funds - only after saving an emergency fund and having no other debt other than my mortgage. (Current target is Q4 this year)
  2. I should learn how to evaluate stock based on company financials (not solely my enthusiasm for a company)
  3. I should have a clear plan for each stock I buy (buy and hold for a year, long term, etc)
  4. No matter what my plan for a certain stock, I should always be aware of it's performance so I can be flexible



Rollover Procrastination
When I left my first tech job in 1999 I just left my money in their 401(k) plan. And once again I sort of "forgot" about it (you sense a theme, do you?). While I was ignoring my first portfolio, not only did I change addresses without notifying them, but my former employer changed 401(k) custodians to Putnam, making even more of a mess of which I remained blissfully(?) unaware. Due to those changes, I didn't get statements, had no idea how to access my account online or otherwise...and I made no move to fix that.

In 2002 I had another obvious opportunity to consolidate when my employer went out of business. I rolled my at-the-time-current 401(k) into a new rollover IRA at Calvert and I even went so far as to aquire the form I'd need to reclaim my first 401(k). I was unemployed for a year, it's not like I didn't have the time to fill out the paperwork. To this day I have no idea why I procrastinated that task.

I finally snagged this money almost a year ago and opened up my new Fidelity rollover IRA. When I looked at my holdings I realized that when they moved my account to putnam they used an out of date allocation scheme...ugh. It's hard to calculate what part of the loss was just the tech bubble and what part was neglect but I lost about a quarter of my portfolio. Ouch.

Lessons Learned:
  1. I need to always stay in control and aware of my own money
  2. Procrastination has potentially cost me significant money, I gotta stop!



Not Living Below My Means and Saving
This is really the kicker. Though I have been saving at least some money for retirement since the mid-90's other than that we have been living AT or slightly ABOVE our means...usually carrying balances on credit cards. I did this my entire adult life up until last year. Every time we would feel like we were about to get ahead financially something would happen to keep us in the hole.

An example is that we had finally saved up about $10k in a very short time in order to buy a house. We were able to find a home that was in the popular neighborhood we liked. It needed a fair amount of work so it was affordably priced. Prices were rising fast so we felt a little pressured to buy quickly or be priced out of where we wanted to live (as had already happened with our current rental neighborhood). With our combined income of ~ $140k our mortgage payments and impending improvement costs were well within our reach. We used our meager savings and creative loans to set up the purchase of the house - a 2 month process. The week before our closing, LaLa was laid off from the company we both worked for and we found ourselves on the raw end of the tech bubble with a market glutted with web designers and our income slashed by more than 40%. Through our original loan we were able to complete the planned major work (the kitchen was not usable when we bought...literally) but without other significant savings to weather that economic downturn we've been struggling to dig ourselves out of a hole since. (It got even worse the following year, but I won't go into that here!)

Buying the house in and of itself was not a financial mistake (it was actually a decent investment) but an example of how I always thought I was making sound financial decisions (a mortgage we can afford on one salary! Highly appreciating area!) but without solid savings to fall back on, I only understood half the picture. Since I wasn't really prepared financially for the unexpected I was always left feeling like I could never get ahead. This has been going on my entire adult life until about a year ago when I finally looked at our $14,000 credit card debt and had an "Aha!" moment.

Lessons Learned:
  1. It is entirely within my power to stop the feeling of "never getting ahead", I simply had to make a choice to do it
  2. I now choose to have a liquid "emergency fund" to help us weather the unexpected
  3. One of the fastest ways for us to accumulate savings is to reduce expenses and continually live below our means
  4. Living below our means isn't onerous, but it does take perseverance and it's sort of fun
  5. In order to live below our means, we must understand both inflows and outflows and make conscious choices with our mutual goals in mind. (And never again allow ignorance or denial to dictate our spending)

Anyway that's a rambly bit of shadenfraude for you to enjoy...

4 comments:

  1. I think it's great that you've been able to take away these lessons, rather than wallow in the "badness" of it all...that shows great resilience, intelligence and positive attitude- that's fantastic! I'm sure you'll be successful, just following that sort of approach. I remember as a young (right out of college) investor, I was talked into making a terrible investment by an unscrupulous broker (money-losing tax shelter type of thing when I was making all of $11,000 a year). To this day I thank that guy, because it taught me an invaluable lesson about investing - always rely on your own information, and there's no substitute for doing one's homeowork, before making the investment and once you hold the asset. If you follow this and become adept at it, at some point, your invesmtent earnings can easily exceed your salary. I haven't used a broker since I was 25 and I think I'm miles ahead because of it.

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  2. Ah the bloopers - those that produce a sad sort of regretful laugh. Yes, we all have them and if someone says they don't - watch out - that person just hasn't woken up to financial reality yet.

    Iomega - I feel that just knowing about that stock so dates me as a late 90's web-head. I even know what a Bernouli drive is...

    Thanks for sharing.

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  3. Your home-buying experience must have been incredibly stressful, wow.
    I also did the "ignore the old 401ks" thing but in my case I don't think it really did too much damage as they were pretty well balanced and just sort of rode along and had increased in value by the time I finally got around to rolling them over. But I don't know, I might have been able to do better with that money if I had paid any attention to it.

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  4. It's so easy to lose track of your 401k's. My wife and I just had the hardest time trying to track down information from a 403b (same as a 401k, but for teachers) from 8 years ago. Rollover it over was cake, though - we used RolloverMarket.

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