Flying on Auto Pilot…
It’s interesting, as Jeff points out, the different views that each of the 7MITs have towards so-called ‘tax-advantaged retirement accounts’ … for example, Jeff views them as ‘investing’ and almost sees his investments in real-estate as ‘distractions’ from his investing strategy … I’m not here to pass judgement on any of this: rather, I want to throw it to you for your ideas?
I find it very interesting how different and at times how similar our approaches to personal finance are. Sometimes, almost everyone is singing the same tune…European luxury vehicles for all my friends (well almost all us), while at other times we are on completely different pages.
Take our discussion about retirement accounts. Some have chosen different savings methods while others have signed up for the full meal deal and drank the tax-deferred retirement account kool-aid. I’m a kool-aid drinker.
I’ve been drinking the kool-aid since I was 23.
I can still hear my father telling me right after I graduated from Aviation Officer Candidate School, “You better start saving for retirement.”
So start I did. And I’ve been at it ever since.
I’m not sure how to react to those who say they don’t need/want to use Uncle Sam’s tax deferred retirement accounts. I appreciate the “damn the torpedoes, full speed ahead” approach, but I think there is a place for these types of accounts in preparing for the later stages of life.
I do not intend to imply that I have this thing squared away. I’m part of this experiment not because I have the answers, but because I know I can do better. My pendulum is probably too far to one side in that I may be relying too much upon my retirement account savings and the promise of a government pension. As you’ll see below, my non-tax-deferred savings strategy is a bit…oh, let’s call it lacking.
I haven’t always saved a ton, but I’ve saved. I am a classic buy and hold long-term investor. I squirrel a way a little at a time, each and every pay check. Yes, I’m one of those dollar-cost-averagers. And lately I’ve been averaging down, which is a good thing. My program is on auto pilot, managing my money and investments automatically, whether I remember to or not.
Let’s hit the details of how I’ve been investing and saving.
My investment and savings vehicles include two traditional and two Roth IRAs, a 401K, two 529 college savings accounts, one brokerage account for individual stocks and a money market account for my cash savings.
On a monthly basis, my wife and I set aside the following:
- 401K – $675 (no employer matching)
- Roth IRAs – $833
- 529s – $800
- Money market savings – $1350
That totals $3658 set aside each month.
The annual numbers look like:
- 401K – $8100
- Roth IRAs – $10000
- 529s – $9600
- Money market savings – $16200
That totals $43,896 set aside annually which is approximately 38% of my gross income.
It’s enlightening putting all the numbers down on a single sheet of paper (or electrons since we’re on the Internet). Now I know why I haven’t been able to afford my own airplane. I’ve been saving too much.
My money is invested predominately in mutual funds in these tax deferred accounts. I have experimented a little with individual stocks but I typically tend to lose there. Heck, lately I’ve lost in my mutual funds as well, but who hasn’t.
For many years I went about investing completely on my own and had mediocre performance. As much as I want to believe investing is a pastime for me, I have to admit that I’m no expert. In 2004 I started subscribing to an investment newsletter and now follow an aggressive growth model portfolio they have put together. My overall performance has improved dramatically but I’ve been hit pretty hard just like everyone else lately.
My portfolio is made up primarily of low cost index funds (a total stock market index, a NASDAQ 100 index, and an EAFE international index fund). I also have a couple aggressive growth oriented funds that are actively managed (read higher fees). These funds are the Baron Partners fund and the Meridian Growth fund. Additionally, I have a few shares of Garmin.
The high water mark was in the fall of 2007 when my investment accounts topped $220K. However, it’s now back down to around $125K as of Feb 09. While that downturn of $95K is disappointing, my Net Worth has increased more than $100K since the Fall of 2007 because of my recent real estate purchase.
While real estate has kept my Net Worth moving forward. It kicked my financial airplane off auto-pilot. I stopped all the investing activity listed above in early January and redirected it to the money market account so I could “pad” my cash to get through the financial and life upheaval that comes with a move. I’m antsy to get my investing back on track and will slowly start re-engaging the auto pilot as my life and finances settle into their new groove.
I have some ideas on changes I need to consider moving forward, but want to hear what you think first.