Daily Archives: April 4, 2008

Daily Accounting: Friday 4/4

Earned: $0 Spent: $4.63 “Saved:” $21

Shucks, the future husband isn’t feeling well, so we’re staying in tonight. Usually, he treats us to dinner at our favorite local restaurant, but he’ll need some R ‘n R tonight. So, when I stopped for my afternoon snack, I also picked up some tortilla chips. I’ll make bean quesadillas and homemade salsa for dinner.

I put “saved” in quotes today because I spoke up twice about money on things I might have let slide I weren’t so conscious of snowflakes. First, a room service charge that I had paid cash for showed up on my credit card statement two days later. I noticed it last night, so I called today, was polite but stubborn when one woman tried to put me off, and got to a manager, who promptly reversed the charge. Yay! Then, at the store, the clerk rang up my chips incorrectly. Normally, I might not have even noticed, but today I did. When she re-did it, the charge was $2 lower. Every little bit helps!

Have a great weekend. I’ll be starting my seeds for the garden, and I hope to drive to a nearby mill for my favorite stone-ground flour.


Yale’s Investment Wizard

Driving to work yesterday, I heard Yale’s endowment manager Dale Swensen in an NPR piece. As manager, he’s grown the fund at an average rate of 16.8 percent a year and added 5 billion dollars last year alone. The fund has beaten every other university endowment or pension fund. I’ve heard about him before and definitely plan to read his book, Unconventional Success: a Fundamental Approach to Personal Investment soon. Right now, since I’m in debt-reduction mode, there’s no investing past my 401(k), but I plan to get more aggressive once we tame our finances and fund an emergency fund. What did I learn?

Swensen’s big advice is that you should rebalance your portfolio quarterly. He does so every day and has made Yale one million dollars in a single day. As I understand it, if the market drops, stocks that used to make up say 30% of your portfolio will now only be 28% or 27%. By rebalancing back to 30% when the market is down, you’ll actually be buying more stock. More stock means more returns when the market rises again. This makes a lot of sense. I just checked my 401(k).  A few weeks ago, I went to 75% equities because I’m in the aggressive years of retirement planning. The portfolio is now at 72.9%, I guess from recent losses in the market. So, in theory, I should move 2.1% out of bonds and into the market. For the average investor, Swensen says you may incur fees if you transfer too much, so be sure to check your plan.

Don’t Pay for Investment Advice
Fees can really add up. The interview used Ameriprise as an example:

“But Ameriprise’s advice comes with a price: up to 1.25 percent of the total investment. That means an investor with a half-million dollars invested in a retirement 401K would end up paying about $6,250 a year in fees.”

Yikes! And we all know what that can mean over the long haul. Those little amounts of money can really add up.

Pick Index Funds
I am a long ways from being able to take extra income and actually invest it. First we’ve got debt reduction, then an emergency fund, then I’d like to start IRAs and pay extra on the mortgage. However, the final step for us will be to start investing. This advice was really comforting. If you go with index funds rather than mutual funds, you’ll avoid fees and still usually come out with better returns. Seems like a great deal there! So, I’ll file this away for when the time comes.

My Own Story
I’m really lucky to be at a university; we have an amazing 401(k) with TIAA-CREF. I put in 10% of my income and the university puts in 12%. That means the equivalent of 22% of my annual salary is getting socked away for retirement. Since it’s involuntary, I never had the choice about how much to contribute. I’m sure I could have easily blown that $400 or so each month, but now it’s all piling up.

However, it doesn’t pile up without some active management. I recently watched the Frontline documentary “Can You Afford to Retire” online. I was horrified. People think their plans are taking care of them, and end up with a pittance. The documentary gives a great history of the 401(k) and why it was never designed to become the central pension plan for employees. After watching, I figured out how to login and check my TIAA-CREF account. Sure enough. In all the rush of paperwork to get enrolled, somehow my plan was allocated COMPLETELY in a money market fund earning 4.7% a year. For the first year and a half, I’d been just filing away my quarterly reports and never thinking much about retirement. I mean, it’s thirty years away! As a result, my plan had only gained $358 in its first year.  After I reallocated everything, I’m up almost $500 in just one month! If things stay the same, that could be $6,000 in returns this year vs. the $358 last year.  Imagine if I had waited ten years to take a closer look at that account.  Even without the miracle of compounding returns, that’s $60,000 I might have lost through sheer carelessness.  Sure things will go up and down with the market, but over the life of the plan, I’m sure to come out much better than 4.7% a year. The key is to manage this account just like I do my checking and savings accounts. It’s real money, so I’d better start treating it as such!