According to my Microsoft Money 2004 report, my investments did well in 2004.
My 401(k) produced a 23.9% return over the year, not accounting for my employer match, just the change in fund values. My Roth IRA delivered a 17.2% return. I have a regular investment account that provided me with a less impressive 6.8% return.
The weighted average annual return of all my investments was 18.7%.
January has been a down month in the stock market. Many people are saying that a poorly performing January signals a poorly performing year ahead. We’ll have to see what happens.
Jonathan Burton of CBS MarketWatch has pointed out that millions of dollars are lost by employees when their employer holds onto 401(k) funds after they are deducted from the paycheck.
It works like this. On Friday, January 1, you receive your paycheck. 12% of your paycheck has been deducted before taxes and put aside. According to regulations, your employer can hold this money (”float” it) until February 21, at which time they deposit the funds into your 401(k) account. During this float period, your employer is making money (interest) on your funds. For a large company with many employees, that adds up to quite amount of money lost to you.
It looks as if the rules will be tightening somewhat. In this age of technology, namely direct deposit and ACH, no float period is necessary.
Working for a financial services company, my guess is that my employer knows that most of its employees would be clued into to the lack of necessity of the float period. Our funds are deposited into our 401(k) accounts on the day they are deducted.
401(k) plans are not the only accounts that are affected by the float. For example, ING Direct floats money deposited for one day. That is, once you deposit money through ACH, you won’t gain any interest on it until the next business day. Most likely, ING Direct is keeping the interest it makes on that first day for the company in some form.
From the article, Employees who are surprised to find out that 401(k) contributions are held back for days or weeks should know that complaints can produce equally surprising results.
Robert Powell has written an article entitled, Seven ways to fully exploit your 401(k), and it appears on CBS MarketWatch. In it, he does what the title suggests and gives the reader seven important things to remember when planning for retirement. Here they are, with infamous Flexo commentary.
Enroll now. I have a friend of mine who has worked at her corporate job for several years, but even to this day I don’t believe she has started contributing to her 401(k) yet. She cites no time and not enough knowledge. I say it’s better to just fill in whatever paperwork needs to be done during lunch one day and go with the default options. It’s better than nothing.
Contribute the maximum allowed. The reality of this is, for people making a modest salary and living in an expensive area, it’s just not possible to invest $14,000 of salary — the maximum for 2005. I currently sock 12% of my salary into the 401(k) and still have a “meager” value to my account.
Sign up for automatic contribution increases. I strongly believe in this. It’s hard to notice gradual, slight changes, especially when they coincide with salary raises and such.
Diversify. Don’t just have a variety of funds, but look at the type of stocks held by those funds and try to make sure you have everything covered. It’s the best way to ensure the value of your holdings grow steadily over time, not that anything is ever guaranteed.
Rebalance. This is perfect for the lazy friend I mentioned above. Automatic rebalancing means that you can take better advantage of the medium-term rises and falls of different sectors of the market.
Simplify. The article says to consider life-cycle funds if you’re too lazy to worry about rebalancing. Just be aware that there are fees hidden in the values of these funds, or “funds of funds,” and you’ll generally end up with more value in the end if you take the time to be more diligent.
Analyze the big picture. The 401(k) shouldn’t be the only tool when planning how to finance your retirement. Taken to another meta-level, your retirement planning shouldn’t be the thought you give to your financial well-being.
An article by Dayana Yochim at The Motley Fool gives the reader license to invest in the market while in debt — as long as the debt is good debt and not bad. Even if the debt is bad debt (credit cards), she suggests investing what you can while keeping to a plan to get out of debt in six months to a year.
My thoughts on debt came mainly from my father, who was in debt most of his life despite taking in a significant amount of income. He’s completely out of debt now and is a strong advocate for staying out of debt.
Speaking of debt, an article on MSN Money features a young woman who managed to rack up $12,000 in credit card debt in four years after having none when she gradutated from college. She says:
“You have this conflict that young people face. . . . They’re supposed to have a certain material status, but there’s a huge gap between reality and pop-culture depictions of young people’s lives. They grew up thinking that a waitress and a sous chef (on the TV show ‘Friends’) could afford a huge two-bedroom in SoHo, which is ridiculous.”
It’s more difficlt when I look around and I see more and more people close to me able to afford buying condos and such. They may be getting a little help from somewhere, but once they buy their condos, they’re in a good position to let their property appreciate and they get the benefit.
Like the rest of the country, I am dealing with the aftermath of the presidential election. The stock market rallied for the day after the elections, but it’s probably more of a response to the fact the election was over quickly, not a response to specifically the guy who won.
While we could think about what would be different in the economy if the other guy won, there’s really not much point. If you’re a stock person, I’d suggest defense-related companies, security-related companies, pharmaceuticals a little, and any new faith-based companies that may enter the markets in the next few years.
I’m not a stock person, though. I don’t have enough money for gambling. I don’t have enough money to make brokers and financial companies rich off the fees and commissions I would be required to pay. Most companies wouldn’t want me and my small potatoes anyway.
Mmmm potatoes.
Last week, I received the following email. I have changed the name of the firm for the safety of the author:
Flexo-
I enjoy reading the posts on your blog ‘Consumerism Commentary’. It is a well put together site. I was reading a post on 9/29 about your brokerage recently charging you an annual fee. You should check out ShareDesigner, ShareDesigner is one of the few brokerages around that does not charge you an annual fee. Furthermore, you will not be charge inactivity fees if you decide you do not want to trade.
The reason I write is to see if I could interest you in putting a ShareDesigner link on your website. Being that it deals with personal finance, I think there would be a good possibility that a small discrete link to our website (for those that read your blog) would be able to earn you some additional money. We pay 20 dollars per opened and funded account, and the readers of your blog just might be the right targeted group for this to work.
I’m not sure how I feel about this. There are fees associated with the account (transaction fees, like all brokers) but no monthly maintenance fee, only for the lowest “version” of their service. I suppose, according to this afilliate program, if I could get one new subscriber a month, the account would be free to me.
I don’t think that the number of readers I have can support one new referral a month. So, I’ve pretty much decided that this wouldn’t really be worth it to me. However, I did write the individual back asking if they would be willing to refund the annual and/or transfer fee incurred by my previous discount brokerage. If they were to spend that $125 ($50 annual fee plus $75 transfer fee, not yet incurred) for me, I would definitely move my assets to them. I have yet to hear a response, as expected.
I don’t like the idea of endorsing a company when being paid to do so. It happens often though, even in the blog world. You never know if the author of a website endorsing a product is being paid to. You never know if product reviews on websites such as epinions.com are actually written by the company offering that product or by honest consumers.
Blogs are often used to gain prominence in Google search listings and use that advatange to attract readers who will click through to advertisements, resulting in income for the “blog” writer. These are not blogs.
Back to the fees from last month. It turns out the old discount brokerage hid the notice of the new fees in a newsletter whose topic is general investing; just the place one would not expect to see such a notice pertaining to their accounts… They feel I have been warned and will not refund my money. Bummer.
At least I was able to negotiate my rent down, at least until the end of April.
Before you make any decisions regarding a financial advisor, read this commentary. The article, from The Motley Fool, gives the reader some tips on how to determine what your potential advisors true motivations are and why this is something important to consider.
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