Gather Little by Little

Photo Credit: PocketAces

Moolanomy is doing a book giveaway this month and this article is my entry. I’d encourage you to share your story, even if you don’t have any experience. As you’ll read, I don’t have much either.

You have until November 30th! Don’t have a blog? No problem, head over to Pinyo’s giveaway article and you can add a comment about your experience instead. …

My First Investment

My first start at investing was signing up for my first professional employer’s (out of college that is) 401k program. Fortunately for me the company was a huge supporter and proponent of their 401k program and had a very persuasive advisor come and talk to us on our first day. I signed up immediately and began contributing to the company 401k program. If I remember correctly I contributed 6% from day one.

401k programs are really the easiest way to invest. You simply have funds pulled out of your paycheck and placed into your 401k account where it is then used to purchase mutual funds, bonds or company stock as you specify. The great thing about a 401k is that the investment dollars are pulled out pre-tax thus reducing your taxable income.

401k Stupidity

At this point, most financially savoy people would be saying “Great job”. Well, I wish I could be take the credit, but I can’t. See, I’ve done at least two dumb things with my 401k: 1) I did a full cash withdrawal after about 5 years of contributing and 2) I took out 401k loans.

After moving into our first home, we had thought we “needed” a bunch of new things for the home and ended up buying this on credit. At some point, I made the stupid decision of deciding it would be a good idea to pull the money out of my 401k to pay-off that debt. Not only did I take a huge tax hit, I paid a 10% early withdrawal penalty. Stupid, stupid, stupid.

On the surface, this looks like a smart decision, but if you consider taxes are conservatively 30%. Add to that the 10% penalty, and you’re really looking at paying 40% interest to payoff debt that is probably at a much lower interest. In other words, would you take out a loan at 40% to payoff your debt? I’m guessing your shaking you head no. I also wrote about this in my contribution to the M-Networks’s group writing project on our best and worst financial decisions.

Later in my career, I also took out a 401k loan. You can read more about why taking out a 401k loan is bad by reading the article I wrote about it.

My failed adventures in individual stocks

At some point during the .com boom, one of my friends convinced me to begin purchasing individual stock. He had had a great deal of success with Cisco (CSCO) and had made considerable money from it over the past year. After discussing it some with my wife, I pulled some of our savings money and purchased around 20 shares of stock using E-trade. I began following it earnestly for the next couple of months. Less than two weeks after I purchased it, the .com bubble began to burst and Cisco stock began to rapidly fall. I held out for too long and finally sold at a loss of more than $500.00. Ouch.

I decided at that point that individual stock purchasing just wasn’t for me and continued investing in my 401k instead. I prefer to let trained professionals that have a passion and manage my stocks for me.

Conclusion

I’ve learned over the years through talking to friends and through reading that individual stock purchasing just isn’t for me. I find it takes a keen eye, a significant amount of time, and personally it’s just stressful. One of the benefits I get from my employer is a stock option plan. I don’t even hold those individual shares, I sell them and use the income to pay on my debt. Once I am out of debt, I’ll use those proceeds to purchase mutual funds and hopefully green mutual funds.

I currently have more than $250,000 in my various 401k investment accounts. I review the performance of the various funds quarterly, and beyond that I don’t really even think about it. Once I get myself fully debt free, I plan to increase my contribution to the full 15%.

If you aren’t currently taking advantage of your employers 401k program, stop what you are doing right now and contact your human resources department and sign-up.