Deezil.us

How I’m making my money work harder for me

Like lots of working Americans, I have a 401K that both I and my employer contribute to.  Also, like lots of working Americans, I had really no idea how to make that money work for me.  I just get in my quarterly summary of what happened to my money, chuck it in the file pile, and go on with my life.  When the last one came in last week, rather than just looking at the bottom line gain, I looked through the details of what my money was in to see how it was performing against the other things I could put my money in.  What I saw there was interesting, and has led me to change how my money is investing, and will lead to bigger gains as our economy is finally coming out of its funk.

Before making my change, my money was going into two categories of mutual funds: Short-Term Fixed Income and Balanced/Asset Allocation funds.  The Fixed Income fund is known for a low risk and a low return and there’s never much activity with the rate of return.  It has stayed around 4% since the inception of my 401K.  The Balanced/ Asset Allocation fund is one that Principal sets up based on your projected retirement date (mine being 2050), and it is a medium risk and a medium return.  This is a safe way to play investments, but without great risk, there is no great reward.  I’m stockpiling cash for free, and based on that (and the fact the balance on my 401k has never went below what I’ve put in it), I decided to get a little more aggressive with my investing setup.

To figure out what I wanted to do with my money, I turned back to the statement I got in the mail.  I took all the funds and compared them on a basis of how they had done over the past 10 years.  In the past 10 years, we’ve had a bubble burst on us (2000) and we’ve had the current recession we are in.  That says to me if the funds can perform decently over that 10 year period, they’re bulletproof to near anything.  I also listen to Dave Ramsey, and follow his advice on the subject of how to do mutual fund investing (even though re recently has changed his stance to a 5 year track record and not a 10), so that helped me set my time table.  What I found was that the Short-Term Fixed Income fund was at around 4%, and that was the lower of the two funds I was in.  I made that my baseline for what funds had to have done over the past 10 years in order to qualify it to get my money.  I looked through all the other funds and found 8 funds that had been around for 10 years and had a track record of 4% earnings or more over that time frame.  I took each of their 10-year return percentages, and summed them up, and then got a percentage based on (fund return / total of fund returns).  I made that the percentage I based my investment in the fund upon.  What I found is that most of my money went into the higher risk, higher reward fund categories, with five funds in the Small/Mid U.S. Equity category and one in International Equity.  Some may see this as a fairly aggressive stance, but for a man as young as I, I can afford to take some risks because I won’t need that money for quite a long time.  In crunching the numbers some more along with reviewing past statements, I realized that if I had done this same analysis even 6 months ago when the market was at the absolute worst, I would have earned a 90% return on a significant portion of my money.  There would have been no more risk, and there would have been much more reward.

The moral of the story is to make sure you are watching your money so it can work harder for you, and don’t be afraid to take more risks, especially when things don’t look the greatest.  You may just make a decision that gives you the leg up on the pile you need.

First paragraph from the book I’m writing.

To the person who knows this story is about her, you told me to write the story. My take on it starts like this:

My son helped me get my bow-tie all straightened out since my hands were dancing all around my body. “Don’t worry,” he says, “you weren’t this nervous when I got married. No reason to start now.” I couldn’t help but agree with him, but after 35 years of pain and toil and heartache, the original dream I had in my mind was finally coming true. I was going to watch her walk down the aisle, hold my hand, and we were going to be one. That fateful day in college, had anyone told me the hell she would put me through to get me the heaven, I would have laughed and said that no woman was ever worth that. Yet, she grabbed my heart and soul at every opportunity and made sure that it was hers. Maybe just for those briefest of moments, but when she saw the opportunity to pounce on me she did. And now, she was going to get me for her own for the rest of my life.

This by no means is finished or even fully fleshed out, partly because the story hasn’t finished yet. We’ll see.