Lessons: Investing Investing Wisdom        Back to Lessons Page

Go To 02.22.2012 Update

Rule Number One: Assume that, by the time you retire, Social Security will contribute roughly Zero Per Cent of your retirement funding.

Rule Number Two: Don't forget Rule Number One.

Rule Number Three: Pay attention to your investments, due to Rules Number One and Number Two.

Back in the late 1960s, I became eligible for an Individual Retirement Account.

At the same time, my company, which was, at the time, RCA Corporation, started a pension plan, and automatically enrolled me. I tried to opt out, since at the time, if you were in a pension plan, you could not legally contribute to an IRA at the same time.

My manager at the time, Dale Baugher, took an excessive amount of time to explain to me that the pension plan was a better idea, financially. I kept telling him he was wrong; he kept smiling, and repeating, "trust me...."

Back then, most pension plans didn't "vest" you, or let you take over ownership of the money, until you'd been with the company for ten or more years. I left RCA a few weeks before my tenth anniversary.

Thanks, Dale.

Thanks, US Government, for screwing me out of my pension investment, which might be worth at least hundreds of thousands of dollars today, if it were mine.

Call us, the folks who started work in the late '60s, The Screwed Generation.

The Screwed Generation

But Listen Up! There's knowledge to be gained from our experience.

If you have a choice, sign up for any kind of IRA or company-contributed plan you can get, even pension plans.

Maximize the contribution you can put in, as well as leverage the maximum company contribution, as quickly as you can.

If you're young, have a growing family and high expenses, make a minimum contribution, at least.

Then, the next time you get a raise, take only part of the raise home as cash, and put part of it back into the IRA or Retirement Plan with your company.

Continue this until you're up to the maximum contribution allowed by law. [then write your Congress people and ask them to raise the limits!]

Manage your investments "actively."

That means, don't just let them float along; check your investments at least quarterly, and sell the losers and find new potential winners.

If your company forces you to invest heavily, or exclusively, in their own stock, leave or fight the Board Of Directors and the Compensation Committee to make sure that you have at least 12 or more investment selections to chose from. If they won't agree, either leave or acknowledge that they're trying to screw you. Remember the folks who were screwed over like this by Enron's pension fund choices, or lack thereof.

That means: Diversify. Investing in one stock, mutual fund, bond, or even one kind of stock (like all of your eggs in high tech or REITs or any one industry) is a recipe for disaster, no matter how good the market is doing.

My wife retired in 2000, just after the market peak. Our advisor at Smith Barney took her retirement package, amounting to several hundred thousand dollars, and recommended a package of stocks and funds.
Within a year of that time, the total portfolio was down about 50%.

Do you understand the concept of "15% Stop-Loss"? That means, if any one investment drops 15% from its peak value, seriously consider selling it and moving the money into some other investment, even if it's a safe harbor, like Money Market Funds. Making a small amount of interest beats losing 15% or 50% or more, every day of the week!

Our "advisor" didn't seem to understand the concept of "15% Stop Loss," but did like to tell us about the new cars she drove, and her big house on the hill, paid for by the yearly flat rate we paid for her "help."

I retired in mid-2003. I'd kept my 401(k) in Money Funds and Bond Funds for the past year, eking out a few per cent gain over the previous year or so, but not participating in the market drops.
I rolled my 401(k) into a Rollover IRA and moved most of it to Charles Schwab.

Schwab's people are not paid on commission; they're on salary. They're not paid to sell stocks or funds that companies like Merrill Lynch or Smith Barney get extra compensation for selling. Schwab consultants are paid based on a percentage of the money they manage.

If my account gets bigger, with their help or my skill, they get paid more. If they don't perform to my satisfaction and help me as I want to be helped, and I leave for some other brokerage, they get paid less.... a lot less!

That's the kind of win-win environment I like.

Why do you think Schwab has picked up so many new accounts over the past year or so?

Update, 02.22.2012...

And then I left Schwab.

Why? Because their "advice" was cookbook. You walk in, state your facts and statistics and goals and they look up a chart as to suggested investment allocation and then give you a shopping list of stocks or funds to choose. After that, they are nice enough to report the results to you regularly.

And that's not enough.

In early 2004, I'd been getting stock suggestions from a good friend of mine who'd done very well picking stocks over the previous years. When we retired, my portfolio plus my wife's (in IRAs) had just nudged over the six-figure level to seven digits to the left of the decimal. His was at eight digits. No, I don't know how deep into eight digits, but he said it was eight, and that was good enough for me.

Then he mentioned that he wouldn't be giving me any more stock tips, as he'd moved all of his retirement money into the hands of a Money Manager... someone who manages the investments FOR him, and he was very happy with them.

Naturally, I asked whom he'd handed his loot over to, and he gave me the link to Fisher Investments.

Curious, my wife and I decided to do a reality check on this outfit, and since it was pretty close by, in the Santa Cruz Mountains northwest of us, we made a "get acquainted meeting date" and went "up the mountain" to the new messiah.

In the end, we felt confident that they could do better for us than we could with our investments and we subsequently transferred our IRAs into a Fisher-Managed account. At our, choice, the money was deposited with Fidelity Investments, with which we'd had some history and trusted to be fair and economical.

So, on June 3, 2004, our account opened and Fisher took over.

Yes, there was a minimum starting balance... those seven digits, again. After the '08 crash, they lowered their threshold to $500,000.

Now, here's the interesting part I want to share with you...

In late 2005, about 6-9 months before the housing bubble popped, we sold our greatly-appreciated house in Cupertino, CA, and after a lot of driving and shopping, bought a home in northwest Raleigh, NC.

The cash left over after the purchase of the new house was enough to add a bunch of upgrades to the house to customize it to our liking AND provide living expenses for us for a year or two so that we did not have to tap our IRAs for day to day cash. A year or two later, I went on Social Security and we started to tap the IRAs for cash.

And, no, Fisher doesn't work for free... they charge a percentage of your holdings as their fees, quarterly.

So, starting around then, we were paying fees to Fisher AND withdrawing cash to make up the difference between Social Security income and our "burn rate" for our new lifestyle.

Here's the kicker...

And I'll update this periodically...

As of this update date, 02.22.2012, our combined IRAs have had fees and withdrawals of just under $430,000.00

Got that? Nearly half a million dollars chewed up in fees and withdrawals our of a just-barely-over $1,000,000 starting number.

As of the market close on 02.22.2012, our TOTAL number of dollars in our combined accounts is less than 6.1% lower than it was the day we started in 2004.

Oh, yes, at the bottom of the 2008 trough, it was down more than that, but today, it's back up to a nice comfortable number.

BFD, right? Yes, of course!

But in the meantime, I've gotten to read several books by Ken Fisher, the owner of Fisher Investments, and in those books, he describes his investment philosophies, style and foundations for the investment decisions he's made over several decades.

You can agree with him or disagree, but the proof of the pudding is in the balance sheet, and we're happy.

Your life and your investments are yours, and you can do what you want, and I'd still suggest you read some of his books, several of which I've linked off my home page as "recommended reading." After that, the ball's in your court. Enjoy!

The US Government is now allowing "catch-up" investing for the Screwed Generation in their IRA plans.
I'm retired; I don't have any earned income at this time. I can't make catch-up contributions.
"Thanks, Congress!" Same to you.
And remember, Congress has pensions they vote for themselves, not IRAs. Nice racket, eh?

We should all be allowed to create tax-defered accounts for:

Think about it!

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