Year end 2004 -- what did you learn?

As 2004 draws to a close I'm finishing up year end tax and investment planning. I thought I'd share some of what I've learned and hope that you will do the same.

I'm a conservative investor and target an stock/bond allocation of approximately 55/45. At the end of 2002 I did some research using Morningstar to select the best mutual funds. My research showed that Indexing works great for large caps, and bonds, and not as well for mid/small caps, and international stocks. I came to this conclusion by observing the performance of Vanguard's index funds relative to managed funds in the same category. I selected funds based on 1, 3, 5, and 10 year returns versus their prospective benchmarks. All selected funds are no load, and have relatively low management fees.

Later in 2003, I read the 'The Intelligent Asset Allocator' and 'Four Pillars of Investing'. Guess what happened to the six funds I bought over the next 2 years? They ALL underperformed their index in 03, all but one are on track to under perform in 04! My conclusion is that it's extremely difficult (possibly impossible) to find a fund manager who can consistently beat the indexes.

I also started planning for tax time. I'm selling some funds that have been losers, and investing the $ the same day in index funds so that my asset allocation doesn't change (even for a day). At the end of 2004 I'll have a $3000 capital loss to deduct from ordinary income (dividends in my case). I found that some companies just don't want to give me my money. For example. I issued a withdrawal from Ameritrade's web site, and checked my account a few days later, it never happened. I had to call Ameritrade, they told me that there was a problem -- but they never even called or emailed me!! Thank you, please close my account. I had a similar issue with a mutual fund company. I mistakenly thought I was set up to receive electronic withdrawals to my bank account. Turns out, that it only works for deposits. This wasn't obvious when I set up electronic banking (it may have been in the small print). Thank you, please send me a check and close my account. Luckily, I had enough cash to cover the transactions so my allocation stayed constant. I've been using Vanguard for 15 years and have never had these kinds of problems with them. Over time, I'm moving more and more of my assets over to Vanguard.

Thanks to this board I discovered that I wasn't using my cash efficiently. I had significant cash in Money Market Mutual funds which pay substantially less than the banks and credit unions I discovered here. Thank you.

Thanks to this board I discovered TreasuryDirect, and am now using I-Bonds as part of my portfolio. Thank you.

I also realized that I need to update my estate plan. It's out of date, and a recent event opened my eyes. I'll probably just use a standard will, power of attorney, and living will. I'm considering a living trust, but I think the management overhead may be a bit high relative to the benefits for me (no kids yet, I'm only 39).

I also stumbled across this group where I've learned about the social aspects of ER, some of the issues other people have, and some valuable investing lessons. The members here are bright, interesting, and often different than me in many ways. Thank you all and have a happy new year, and holiday season.

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Thanks to this board I discovered that I wasn't using my cash efficiently. *I had significant cash in Money Market Mutual funds which pay substantially less than the banks and credit unions I discovered here. *Thank you. Thanks to this board I discovered TreasuryDirect, and am now using I-Bonds as part of my portfolio. *Thank you.

Good Post! - I too had too much in Cash and the Short Term Corp Fund at Vanguard, also. I think it paid me a measly .59% last year. That was in dividends. I just sold a bunch and put it in I-Bonds also. When I sold the Short term Corp Bond FUnd had actually provided me a Capital Loss to write off on my Taxes.

I am also striving for the 55/45 Stock/ Bond Mix and should get there next year.

I also read 4 pillars this year and 'Got Religion' as Wab calls it. Watching investments is too much like work for me. I'd rather go fishing. I also learned again this year that my best moves have been to 'do nothing'.

When I 'bit the bullet' early this year and commited to asset classes. I jumped into REITs with 10% of my Stock Alllocation. After it's runnup over the years, I was convinced it was probably headed south. It was not, It was my performing asset class, up over 20% for the year. Rebalancing the portfoliio will help take some money off the table. All my asset classes managed a gain this year, with the bottom of the heap being the Short Term Corp Bond Fund.

[brewer12345]

I learned that my risk tolerance has changed significantly. I had a meltdown of a modest position in my portfolio that caused me to re-evalute where I am and what I need in order to get to FIRE. It quickly became clear that I am a lot farther along on the path than a few years ago and I gain very little by taking lots of extra risk and I run the risk of not making my goals. So I am starting a medium term (18 months or so) effort to diversify and throttle back on single large equity positions.

[Roger_R]

That's a question that could have a lengthy answer for me. At 52 the prospects of ER have become nearly immediate. And at the same time I discovered and read five or six of the asset allocation/index fund style investments books that are the most recommended. This has meant a severe revamp of my traditional investments. One that I'm still in the process of doing, but have3 the start of what I consider a well balanced portfolio.

At least as far as the several months I've watched things closely, instead of everything going up or down in my old traditional investments, I'm starting to see the balance of some things going up while other may go down or stay the same. Or visa versa. I guess they are essentially protecting each other and it has been a decent year for things. While elementary to you veterans, this has been eye opening for me. I am now more convinced that having a plan and staying the course are more important than I had ever thought. But also that there will always be some rules to be broken.

Another thing has been the watch on interest rates. And have learned that the longer term rates are not as predictable as some would think. I still have some reserves waiting for those elusive higher returns, but am glad I at least started into some intermediate term bond funds without waiting.

And maybe the last bigger item is the use of the FIRE calculator and a few of the outlying pricipals behind them. I am at least starting to learn that these are just numbers, and there are a lot of intangibles behind things that may allow one to take the numbers as less than absolute. The unknowns around health care expenses, the advantages of a COLA vs my pukey fixed pension (which I remain thankful of), and the fact that at least part of our investment future remains statistically independent. These all total up to adding both some caution and optimism to my retirement income possibilities. Perhaps a wash in the end, but some provocative thinking behind things.



Oh yeah. Finally I'm learning a lot just from reading the interesting posts here. Thanks.

[Nords]

I learned that the second year of retirement is, if possible, even better than the first. I'm looking forward to a repeat lesson.

I learned that 2004 has been a good year to be fully invested. I hope to learn the same in 2005 despite the "sell in May" syndrome.

I learned that we could probably spend more money than we save. I'm still trying to advance that discovery from "theoretical" to "application".

I learned that the fourth mortgage refinancing in four years is still a royal pain. But with that record on file, you can negotiate big discounts among the title companies. I'm not planning to reaffirm this during 2005.

I learned that I'm not ready for double-overhead surf yet. Well, I'm thoroughly checked out at surviving underneath it, but not at riding on top of it. So there's something left to learn in 2005!

I also learned better ways to invest my cash- out of mutual fund MM account and into savings bonds. I went the savings bond route after rates increased to 3.25%- figured in six months, they will be close to I-bond rates, and in 12 months may surpass them since the fixed rate is only 1% on I-bonds.

I learned about Citi Dividends cards.

I learned to put much more value on my present income and save more of it. I was motivated to find a better paying job when I realized this meant I could save the whole pay raise and really come out ahead.

I learned that we could afford to ER in 6 years when DH retires from fed govt IF we planned ahead-- I am very happy that this gives us the freedom to live where we choose.

I learned how fast 60 years could go by. It was quite
a party though.

JG

[indymom]

I learned that without kids and a mortgage we can live nicely on much less than the 80% figure that had me scared to death, since it was an involuntry retirement.

[KB]

I learned a lot more about staging my plan to ER in 2006.

I started tracking my spending in Dec 2003 so have 12 months of data wich shows my true spending, not the budget that I think I'll spend.

I learned about Ibonds, the 4 Pillars book (which I will start reading this month) and more investment info. Oh Tracfone too. I rarely use my cell phone for 35.00 a month so will cancel and get a tracfone.

Lots and lots of little stuff which validated a lot of what I was already doing.

I did learn frustration or envy since I'm not quite to the point to ER. I confess I'm jealous about those who are already retired.

If I keep on my plan, I can ER in March 2006 if I sell my house. That is a big decision that I will make as I get closer to that time.

It's been a good year, thanks.......

Oh, and I saw a lot of fish pictures too..and listened to John. Now we can hope TH stops by when he has a baby to introduce.

[wabmester]

I learned that Dell has some real bargains on computers once in a while. Damn that TH!

[KB]

Thanks Cut-Throat....you made my day

[AltaRed]

Dang that Char looks nice. I remember the taste of some 20 pounders out of Great Bear Lake a few years back - freshly caught and cooked. Not as far north as Victoria Island, but there was still ice on a portion of the lake when I was there.

Back to the topic, I have learned a lot as a new member of this board in 2004. A nice addition to The Wealthy Boomer board in Canada.

Confirmed my belief that Americans have many more pleasent options for retirement locations than do Canadians. Spouse and I have taken a look at several from eastern Gulf of M shoreline (FL, AL, MS) to Corpus Texas to Austin Hill Country, to Arizona. Have yet to check out NC.

Reading the posts on this board has reinforced my commitment to FIRE, probably May 2006 (want to reach a 35 year milestone as a life achievement before I hang up my spurs).

[cute fuzzy bunny]

Quote:

Damn that TH!

You know, I live to be damned...

I learned I could do all of my 2003 new years resolutions except for that frickin' 20lbs i wanted to lose.

3 weeks and counting until baby time. More or less

Maybe carrying a baby around for a while will knock some of those extra pounds off..

Just read a funny article this morning about men who stop working to stay home and raise the baby while their wife returns to work. Good emotional cross over with ER. My favorite quote was that quitting work 'chews up your manhood, spits it out and then chews it up again'.

Must have been a pretty weak 'manhood' if forsaking work to spend your time with your child destroys it...

Happy, happy hollidays to all, and if I dont get back here again until then...a very happy new year.

(oh yeah...quit whining Wab, you know you're loving your new playtoys...

[cute fuzzy bunny]

Quote:

I found that some companies just don't want to give me my money. For example. I issued a withdrawal from Ameritrade's web site, and checked my account a few days later, it never happened. I had to call Ameritrade, they told me that there was a problem -- but they never even called or emailed me!! Thank you, please close my account.

Quote:

I found that some companies just don't want to give me my money. For example. I issued a withdrawal from Ameritrade's web site, and checked my account a few days later, it never happened. I had to call Ameritrade, they told me that there was a problem -- but they never even called or emailed me!! Thank you, please close my account.

Best check with them again. When I finally got tired of Ameritrade problems I asked them to close and delete my account. Last thing I need is an orphan investment account still tied to my checking account. When I checked back a few weeks later, not only did I still have an account, I could still log into it. Three (count 'em) attempts later, they at least no longer allow internet logins to the account, but I'd bet big buckaroos that its still technically 'open'. They were VERY reticent about removing it, insisting on keeping it 'open but dormant'. I guess its important to them to maintain customer numbers. I'm also willing to wager that five or ten years from now I get a bill from them for some random inactivity fee they instituted.

I'm regularly stunned by how many companies dont call customers when there is a problem, leaving the onus on the customer to call. Is there really a cost savings or benefit to not provide proactive service and let the customer get irate and call you first? The good news is they'll offset this by spending 10x the money trying to lure and hook new customers to replace the annoyed ones that leave.

[FunGoals]

I learned that INGDirect is great for moving money between banks, short term rates & accounts for miscellaneous use.

I learned that rising gas prices CAN affect travel planning.

I learned a lot from CNNfn.

I learned that the Fed raising short term rates does not transfer across the yield curve proportionally.

I learned that while Greenspan et al were inching up the fed rate, some other rates were actually decreasing.
Interesting.

JG

[FunGoals]

Lead & lag - very interesting
It would be great if INGdirect followed to 3.25

[MJ]

I FOUND THIS GREAT WEBSITE AT THE BEGINNING OF THE YEAR!
With help of the wonderful people of this site, I was able to envision and formulate a plan to ER. A plan which did not exist before.

I learned that 2005 will be a MAJOR milestone year for me (I will be ER'g).

I found INGDirect.

I found PentagonFCU. I socked away money in 5.25% 5 year CDs, a small isolated interest miracle in Feb 2004.

I began liquidating my equity portofolio to protect my assets.


MJ

[JDARNELL]

2004 has been a prety good year. I think I have learned several things

Personal Fitness-Something I have got to do and get stay into a routine. Big concern when I retire. Seems like it is harder to loose it now.

Employment-Many of you may remember back in the summer I posted about laying it out for the boss and getting a new job on the senior staff. It's a great job, but it is a lot of work and at times like groundhog day. I miss my previous position. It was a blast.

Housing Expense-Making the big push to have the house paid off in 3 years. But now there may be a chance I will PCS somewhere else in the next 12-18 months. So I am setting the prepayment $$$ aside for a potential downpayment if we move.

Financial-Make things simpler. I am working on it but it's going to take some time. Feel confident that when it comes time to hang it up we will be just fine money wise.

Family-Biggest lesson here. Boys need me home and retired as soon as possible. CINC house and I need to work harder on staying connected. Sometimes the day to day things get in the way of what is really important.

JDW

[Martha]

I learned a lot in 2004.

--Managing 28 headstrong lawyers who value their independence is hard. I decided I no longer wanted to be managing partner and resigned effective the end of this year.

--I convinced my firm I could practice law and serve my clients on a part time basis. Never had been done in the hundred plus years of my firm.

--After pretty much ignoring what my DH does with our money, I learned how much we had, where it was invested and discovered I might be able to retire as he did.

--We decided to sell our cabin and did so. Who needs two homes anyway? Two to clean, two to pay taxes on. I was glad to see it go.

--I learned this Christmas holiday that my DH doesn't expect that I will cook after I retire, so long as I play with the dogs and go outside and pick up their poop. Rather pick up dog poo any day than cook.