Sunday, May 31, 2015

My Biggest Investment Regret

Recently USA Today linked an article from the Motley Fool, a very useful website, entitled, “Ask a Fool: Your Biggest Investing Regret?” The authors confessed their greatest regret. One was pretty silly. Investor A bought Tesla at $20 and sold at $70. Of course Tesla went on up to $244. However, if your greatest regret is a trade that more than tripled your money, all I can say is, “Poor baby.” Investor B had a more realistic regret. He failed to increase the contributions to his automatically debited investment accounts in the years the stock market declined. At least he didn’t buy when the market was high and sell when it was low. All too many Americans made that mistake in 2000 and 2008. The final author made a serious mistake not once but twice. He cashed out his 401(k) for immediate cash needs. Not only did he pay taxes and a penalty to net a lousy $6,500 but he denied himself the power of compound interest over future decades. Currently, that $6,500 would be worth $23,000. He calculates that if the market continues to generate a historically reasonable rate of return in the years running up to his planned retirement, that $6,500 would have been worth $195,000.

My greatest regret? Not starting soon enough with enough.

For a variety of reasons, some of them not my fault, I lost a decade at the beginning of my career. However, once I had an engineering degree I was able to secure a stable job with benefits. One of these benefits was the Thrift Savings Plan, a tax favored retirement account with matching money for Government employees. I didn’t put very much into this account in the beginning. Although I wasn’t saddled with any student loans, I had less than $2,000 on hand when I finished engineering school. Like all Americans, we wanted to buy a house. At that time in Montgomery County MD, that would require $18,000 cash money.

Retirement was not an immediate concern. Wrong. Retirement begins at twenty two.

Then, in 1995 Clinton and the Republicans in Congress shut down the Government. Because I worked in a Navy laboratory, I was considered a “mission critical employee.” My paycheck was never in danger. However, Clinton seized all the G Fund money in my retirement account. He just took it. Nobody gave him permission. Congress didn’t change the law. He just stole my money. Of course it was refunded when the crisis passed, but this did not increase my confidence in investing large sums in my TSP account. Instead, I bought a house, paid if off in less than 10 years, and started investing in a taxable brokerage account.

Eventually, over time, I increased my contributions to my TSP account whenever I received a raise until I reached 14%. That would be 1% shy of the widely recommended figure of 15% of your pretax income into tax favored retirement accounts. However, my taxable Schwab brokerage account became the apple of my eye. It received the lion’s share of my discretionary income as well as the benefit of constant attention.

I could have done better, a lot better. I could have contributed more--sooner to that TSP account and still bought a house, paid it off early, and learned the basics of value investing. All that extra TSP money would have been growing tax free with the addition of 5% free money from my employer. It took me a while to claim all of that available 5%. Don’t make that mistake. Any time anyone offers you free money, take it and run.

My second regret? The Roth IRA came along too late to do me much good. Young people, if at all possible once you get any available matching money from your employer 401 (k), fund your Roth.

We will all make investment mistakes. Don’t worry too much about the past. You can’t change it. Instead, in this present moment, plan for your future and take a meaningful step towards that future. I hope, like investor A your biggest regret will be missing out on the last half of a ten banger. However, even if you make a serious mistake, you can recover. Consistent effort over long periods of time will produce the desired results with a high degree of probability.

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