The Writers Coin

When I started reading about retirement accounts like the 401(k) and the Roth IRA for the first time, I immediately became paranoid. Even though I was in my mid twenties, I was already nervous about retirement — it’s just the way I am. I mean, what would happen if I get to age 75 and don’t have enough money to live? Who would take care of me? So right away I made saving for retirement a priority. Ever since, I’ve contributed the full amount to my Roth and I’ve gradually bumped my 401(k) contribution from 4% all the way up to 8% (I’m saving for a down payment so that’s why it isn’t higher).

But that’s a good thing, right? And what does a bungee jumper have to do with retirement? I’ll tell you why: saving for retirement is a smart, responsible thing to do — but you can’t let that get in the way of living your life today. There are things you won’t be able to do when you retire (physically, for the most part) that you may want to do at some point in your life. So guess what? That means doing it now. Things like bungee jumping.

Earlier this year M and I went skiing together. It was a great trip and we had a lot of fun. But when we were planning for it I was a little skeptical. Do we really need to go skiing? Paying for a hotel, the mountain pass, the ski rental, travel expenses, etc. — all that stuff adds up. Money I could’ve easily put into my Roth IRA account. Eventually I came around and I’m really glad I did, but it was a good reminder that, while saving for tomorrow is a good thing, you can’t forget about today. Now we have a picture of the two of us in full ski regalia with snow falling all around us. A picture we can look at when we’re old and wrinkly and reminisce, “Ahh, that was a good trip.”

Frugal Dad recently wrote about stopping to smell the roses, and that’s how I was reminded of this whole retirement vs. living thing. I’ve written about it too — but when you’re so worried about the long-term stuff and trying to be a responsible person, it’s easy to forget. So skiing and bungee jumping are good reminders.

Have you ever not done something because you were more concerned about the future than the present?

When I switched jobs earlier this year, I was very good about rolling over my 401(k) plan from my old job. I did it as soon as I can and completed all the paperwork in a timely way. But the whole process meant that my money was out of the market for a month or so, and it drove me crazy. Being a long-term investor meant riding the highs and lows and never having to miss out on any of it. I have mentally prepared myself to handle everything that comes with that.

Well, it turns out that I accidentally timed the market to perfection. It wasn’t my intention and I would never try to do it again—no one can consistently do it. I checked my 401(k) account and, sure enough, I am up 8% this year already while the S&P index is down around 4%. Considering I am invested mostly in index funds, this is great news.

Part of the reason I’m doing well is because I’m diversified—I don’t just own an S&P index fund and that’s it. I have an international index fund, a mid-cap fund, and a large-cap fund. Wither way, I could sit here and tell you that the reason I’m doing well today is because I did this or I did that. But really this is all about luck, don’t think I don’t know that. If I hadn’t moved my 401(k) around and taken it “off the market” for a little over a month, I would be down for sure.

The lesson to learn here is an old one but good one: you can’t time the market. And when you happen to do it, consider yourself lucky and don’t try to hit another homerun. Karma will eventually catch up to you.

Anyone else have some lucky (or unlucky) stories surrounding 401(k) accounts or other investments? 

Here is a great article going over the way so many 401(k) providers make shady a profit off their customers without them even knowing it.

I’ve experienced this personally when I questioned the people in charge of our plan why they did things the way they did. The result? I got yelled at.

Recently I wrote about how I lowered my 401(k) contribution from 6% to 4% because the expense ratios were high and the choices I had weren’t very good.

The pivotal moment came when we had our annual meeting with Principal, our 401(k) provider. I had the menu of choices in front of me and I wanted to ask a simple question:

“Why are the funds so expensive (.65 and up expense ratios) when in your own literature it says these funds function almost entirely like index funds?”

Most of our options were “80% index funds with the other 20% being treated like a managed fund, which is how they justified the high expense ratio: These funds are actively managed.

Followed by, “Why can’t we have more straight index funds so the expense ratios are less? I’m a big fan of index funds.”

The old guy stepped out from behind the shadows and looked at me like I was an idiot, “Why would we want to do that when we have proven, consistently, that we can beat the averages? Why on earth wouldn’t you want to beat the averages? Our customers come back to us because we deliver results. . .” Blah blah blah he went on and on.

Basically, I got yelled at because I brought some common sense into his pitch. I thought about (briefly) bringing up the whole point that the numbers show you HAVE NOT beaten the averages and how actively managed mutual funds DO NOT BEAT THE AVERAGES but the yelling tempered that urge.

This is how investment companies work: they intimidate people by talking above them (or trying to) and when a sneaky little person tries to say “Wait a minute guys, this makes no sense,” they get shot out of the air.

I was shocked that I would get berated in public like this by some old dude who doesn’t even know me, but that’s the way it works.

The next day I lowered my contribution to 4%, which is what my employer matches. That extra money is going into my ING account and then later into my Roth IRA. Where I’ll be paying a LOT less in expenses.

Will our company stand up to them to get some more options thrown in? Not likely. Our CEO, when asked if we could establish a profit-sharing system in the company, responded with “Well that’s impossible because we’re a private company. It doesn’t exist. Next question.”

Umm, actually it does, but what he meant is it won’t exist for us. Ever.

Why? Cause he says so.