Category Archives: Investing

Investing

Update On My Friend Who Pulled $100K Out Of The Market

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My post regarding my friend who pulled $100,000 out of his investments when the Dow plummeted last week received a lot of comments. Therefore, I felt an update was warranted.

I spoke with my friend yesterday and it turns out that he reinvested the money almost immediately. He might have lost a few bucks, but the bulk of the money is back in the stock market. Obviously, I was really happy that he made that decision. We ended up having a pretty good talk about money. I appologized for butting my head into his business, but he understood that I’m just trying to help and he said he appricated it. I reminded him that having this much invested at his age puts him ahead of the curve and that it’s going to be worth a boatload when he needs it for retirement in 20-30 years.

Thanks to everyone that commented on the original post. As always, I appreciate the input and feedback.

Investing

In A Panic, My Friend Pulled $100K Out Of The Market

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My best friend inherited $100,000 when we were in college over 10 years ago. He blew through the money quickly and ended up with nothing to show for it. A couple of years ago, he received a 2nd inheritance of ~$160,000 and swore not to make the same mistakes. He immediately worked with a financial planner, investing $100,000 and depositing the remainder into a savings account.

During our conversations over the past couple of years, I got the impression that he was slowly spending the money in his savings account. Since he is in between jobs and will not likely receive another inheritance, I was worried, but knew that he at least had the $100K invested in a diversified portfolio. Whenever we spoke about money, I reminded him that, if he leaves his investments alone, he will be set when he retires.

Last week, he called to let me know after the Dow plummeted, he freaked out and pulled all of the money out of his investments. I explained to him that it was only a paper loss until he pulled the money out and that with his timeframe to retirement (25-30 years) it doesn’t matter what the market does short term.

It’s tough to see a good friend make such a huge mistake. I’m half convinced that he is going to deposit the money into his savings account and slowly bleed it dry. Because he’s like family, I’ve got to talk some sense into him. I’m going to call him back this week to encourage him to reinvest the money and leave it alone (no matter what the market does short term).

Investing

Stock Options Package

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The company I work for split into two companies a couple of years ago and both are still privately owned by the same person. Since the split, the Owner has hinted that some key people in management may receive stock options down the road.

My company has provided stock options in the past, but not while I have been with them. The recent splitting of the organization resulted in a new Board of Directors and a fresh look at offering a stock option plan. I found out last week that seven of us received a stock options package that will go into effect next September.

I was provided a large packet explaining how the program works and that I can exercise the option to buy up to 16 shares a year (beginning 9/1/09) for 5 years at $1/share. The current value of each share is $500. So, I can obtain up to $8,000 worth of stock each year for only $16.

Historically, when shareholders have left the organization, the company has bought out their shares at the current book value. There’s even been a couple of cases of existing employees selling shares back to the company at a slight discount to get access to the money. In fact, my old GM sold back almost $200K of his shares last year because he wanted to remold his home.

I’m really happy that my company included me on this opportunity, not only for the financial gain, but also because it’s nice to know my hard work is appreciated. This is another piece in the puzzle to reach our early retirement goal in ~19 years.

Debt, Goals, Investing

What A Difference A Year Makes

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Last August, I posted about how our financial situation had significantly changed for the better from two years prior. What’s interesting about that post is that 10 days later, my wife was laid off from her job and we faced a potentially challenging time. Less than a week after being laid off, we were blessed with her receiving a new job, saving us from what could put our financial situation in dire straits.

Well, now I’d like to take a look at August 2007 compared to August 2008 (see below). Again, we’ve been greatly blessed and have seen our financial picture improve more than we could have even hoped. We’ve continued to increase our retirement investments and improve our savings. We’ve also eliminated our credit card debt and improved our salaries. Another major change from last year is that my wife now has another new job in a field that she is truly passionate about. Her new job has so many benefits, I can’t list them all here. The short list is company car and gas card, 401(k) with company match, and cell and internet reimbursements. What you can’t see in the breakdown below is that her annual bonus should be ~$20,000!

401(k), Emergency Fund, Investing, Roth IRA

Balancing Act

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My wife and I are trying to find the balance between long term investing (retirement) and short term savings (emergency fund, house, etc.).

I tend to focus too much on investing for retirement, and am eager to put all of our spare money into either our Roth IRA’s or 401(k). The power of compounding is amazing and time is the most important element. The more money we can invest now, the better off we should be later. This simple table demonstrates that a person who invests early and for just eight years will have more money at 65 years old than will someone who starts late and invests for nearly 40 years.

My wife, on the other hand, reminds me that we can’t keep all of our money tied up in retirement accounts. We want to buy a house in a few years and need to save for a down payment. We also need to have cash on hand for unexpected emergencies. We had a real world example of why this is important when my wife was recently laid off. The value of an emergency fund, even the smallish amount we had in our savings at the time (~$3,000), provided a great deal of peace of mind. Thankfully, my wife found a new job within a week, and we did not have to dip into our savings.

Like most things in life, we have to find a balance. Currently, our retirement investments represent 78.30% of our total liquid assets. We’ve agreed to work on increasing our savings, but not at the expense of fully funding our Roth IRA’s. In fact, we have already added another $1,300 to our savings this month, while simultaneously investing another $200 in my wife’s Roth IRA.

Debt, Goals, Investing

What A Difference A Couple Of Years Make

Over the weekend, I was looking at an old copy of our financial spreadsheet from 2 years ago. It brought me back to a time of financial struggle and uncertainty.

At the time, we were renting an apartment, in a lot of debt (my fault), and had little in the way of assets. Comparing the numbers from 2005 with 2007 reminds me how greatly we have been blessed. Here is a brief breakdown of where we were financially in August 2005 and were we are today:

August 2005

Liquid Assets
$5,157.00 401(k)
$1,547.00 Cash & Savings Accts
$759.00 Taxable accounts
$7,454.00 Total

Credit Card Debt
$10,630.56 (9.99%- 15.49% interest rate)

Net Pay Every 2 Weeks
$1,390.00 (Husband)
$1,180.00 (Wife)
$2,570.00 Total

August 2007

Liquid Assets
$12,805.68 401(k)
$3,326.97 Cash & Savings Accts
$6,278.41 Roth IRA’s
$838.79 Taxable accounts
$23,249.85 Total

Credit Card Debt
$1,249.49 (0% interest rate)

Net Pay Every 2 Weeks
$1,880.70 (Husband)
$1,200.00 plus bonuses and commissions (Wife)
$3,080.70 Total plus Wife’s bonuses and commissions

Investing

Market Ups and Downs

I update our net worth in our spreadsheet almost daily, but only post updates to this blog on the 1st of every month.

That being said, it drives me a little crazy when the stock market does great all month, and then, just as I get ready to post our new net worth on the 1st, the market drops. I know it doesn’t matter long term, and in fact, it is better for us because we are buying mutual funds at a lower price. However, I wish it would just wait until after I post the update on the 1st. The numbers would have looked great.

Oh, well, the market can always rebound before then. . .Dang it, I just checked and it’s down again today.

401(k), Investing, Roth IRA

Investing Plan – Update

We have made good progress with our Investing Plan, and have tweaked it a bit along the way.

401(k)
Our 401(k) is currently at $13,184.13. We have increase our contribution from 2% to 3%, effective July 4. To better diversify our 401(k), we have reduced the percentage allocation of each mutual fund, and added a couple of additional funds. Our current holdings are:

16% – JH Lifestyle Aggressive (1.47% expense ratio)
16% – Pacific Rim Fund (1.46% expense ratio)
16% – Real Est. Securities Fund (1.19% expense ratio)
20% – Natural Resources Fund (1.49% expense ratio)
16% – International Small Cap Fund (1.55% expense ratio)
16% – Small Cap Index Fund (0.95% expense ratio)

I really dislike the high expense ratios of my 401(k) choices, and I was surprised to find they increased on some of the funds since my last post, and went down on others.

My wife is eligible to enroll in her company’s 401(k) plan in October. She will get a 100% match on the first 3% and a 50% match for the next 2%. Needless to say, we plan to invest 5% of her paycheck to get the company match (free money).

Roth IRA’s
My wife and I have opened Roth IRA’s thru Vanguard.

For my wife, we invested $3,000 in Vanguard 500 Index Fund Investor Shares (VFINX) (0.18% expense ratio).

And for me, we invested $3,000 in Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) (0.19% expense ratio).

We hope to have both Roths fully funded by the end of the year.

Taxable Accounts (Brokerage, Prosper, etc.)
Our 300 shares of ADVENTRX Pharmaceuticals (ANX) are now worth $798.00. My parents gave me this stock, and have a large amount of money invested in this stock. Since they first bought in, the stock has almost doubled. They expect it will go to $10/share. That would be sweet.

My wife and I invested $100 in two Proper loans. Both loans are current and our average interest rate is 12.23%, which is great, but for a variety of reasons, I’m glad we didn’t invest more money.

Savings Accounts
With just a $1,286.79 balance, we haven’t made as much progress on our saving as we would like. Most of our spare money has gone to funding our Roth IRA’s. We should be able to build this up the 2nd half of the year. Our goal is to eventually have a $10,000 emergency fund.

We feel that things are clicking along nicely. We’re working towards our goals, while not having to overly sacrifice. God willing, this success will continue.

Investing, Money Musings, Roth IRA

Pride of Ownership

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I don’t want to put words in her mouth, but I think my wife is now as obsessed with watching our investments as I am.

One of the first things I do each morning is to check the status of our investments. Not to react to the ups and downs of the market, just because I enjoy seeing how things are going.

While my wife has been very interested and active with our investments, she hasn’t been as OCD as am I in terms of checking them daily. At least, not until recently. . .

She just opened a Roth IRA account with Vanguard over the weekend and funded it with $3,000.00. Since then, she has been getting a kick out of checking the progress each day. I’m convinced that this peaked interest has something to do with setting-up the account herself and having it in her name. There’s definitely something to be said for pride of ownership.