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MY FIRST JOB AFTER college was at a global engineering firm. A roommate also worked there. It was a tedious office job, but my bosses thought I had potential and encouraged me to study engineering, which I didn’t.
Instead, I quit and went to graduate school to study linguistics, a field where I observed the most professors having the most fun. My last paycheck at the engineering firm included an extra sum. It was a refund for a retirement account that had failed to vest because I hadn’t stayed long enough. This shocked me, since I hadn’t the foggiest sense that someday I would be old and need retirement funds. I didn’t know there was such a thing as a defined benefit plan. I spent the windfall, probably on rent and books, with nary a second thought.
At my second job, I paid attention when bosses talked about the company’s 401(k) plan and insurance coverage. I worked there five years and, when I left, that money stayed in place. A lazy investor, I let it ride until I later rolled it over into my retirement account at my next employer.
Throughout the remainder of my working life, I never cashed out that money. In fact, thereafter, I let all saved dollars ride, remembering that first little retirement check that got away.
Some friends worked on picking better investments in an effort to boost their performance, but that sounded like extra effort with limited return for time invested. I just saved a little more, assuming my results were a little weaker. I’d ask others only general questions and tried to stay away from the worst investment mistakes, even when banner headlines managed to pierce my general disinterest in personal finance.
During the dot-com boom, I met a couple of guys at a conference mixer who were discussing their hot investments, including the grocery service Webvan. I asked why they owned the stock, given Webvan’s apparently flawed business model. “What do I care?” said one. “I’m selling that stock tomorrow.” That day, I gave up owning anything other than mutual funds. I figured it would take a lot of time to be knowledgeable enough about individual stocks, and I was too busy with family and career.
Instead, I followed a “random walker” dollar-cost-averaging investment model, saving what I could of each paycheck and periodically noting whether my retirement accounts were growing. I didn’t switch in and out of funds based on returns, and I didn’t accelerate my contributions when markets were weak, strategies that might have boosted earnings, if I were correct and lucky, or might have cost a lot.
Some years, I felt like I was pouring water into a draining tub, buying into a falling market. But I was no expert. I never spent enough time studying finance, so I had no idea how to avoid such bear market losses, if that’s even possible. I couldn’t outsmart expert investors and industry insiders. So I continued on my lazy path.
As I grew older, the cost of retirement became clearer. Once I hit age 50, I took advantage of catch-up contributions. This was a choice made out of fear, not savvy, and also a lazy way to “spend” my salary increases, since my living expenses were pretty steady at that point.
Whenever a market correction occurred, I would open my retirement plan statements with trepidation. Even with ongoing contributions, my total balance sometimes declined. I’d look happily at the portion of my portfolio in bond funds that retained the value of recent contributions. In other years, and over time, I noticed how little my bond funds grew. The bulk of my money, held in diversified stock index funds, had done much better. This encouraged me to keep contributing to a balanced portfolio that had slightly more in stocks than my risk-averse nature might prefer.
I have time now to reflect on the outcome of four decades of work and investing. I’m no market expert and there was nothing remarkable about the funds I selected. But over time, I built a secure foundation for retirement. Looking back, three things strike me:
Catherine Horiuchi recently retired from the University of San Francisco’s School of Management, where she was an associate professor teaching graduate courses in public policy, public finance and government technology. Check out Catherine’s earlier articles.
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I’m inclined to believe that I was born frugal, but I had an experience in my early 20s that further formed my attitude to material things and helped turn me into a life-long investor. Like many males of that age, I too purchased a sports car. Though it didn’t appear so at the time, it was most definitely a status symbol boosting my confidence level so much more when taking girls on dates.
I soon had a flat tire and the replacement, if I recall correctly, was almost $300 per tire, for which I needed two. So $600 in a blink of an eye and this made me rethink the benefits of a shiny red ego booster.
A while later I was rear ended and needed body work to straighten out the frame and the rest. After this the car was never the same and my feelings toward it changed – It became just another used car to me.
After this experience I never again became emotionally attached to fancy cars and to this day, cars are just a mode of getting from here to there.
The real lesson for me here actually wasn’t about costs though it was important. The deeper lesson was the transient nature of happiness we obtain from material things. This lesson is as old as mankind, but it’s amazing how we’re constantly fooled into buying newer, bigger, fancier, shiny objects when we could be doing something smarter with the money.
As I said in the first sentence, i believe i was born frugal. This frugality isn’t extreme by any stretch, but I’ve always been rather insecure about it, as if there was something wrong with me. Should i not care about designer clothes, nice cars and a house as big as I can afford? After all, this is America !!
Imagine how relieved I was when I read the seminal book The Millionaire Next Door. The book was describing people like me !! The typical millionaire appears to be a hardworking, frugal, unentitled individual living next door in that average house driving that average domestic car. When observed in laboratory experiments, even the typical millionaire creature’s dietary habits were quite ordinary. When lavish food was placed in the same room, this creature opted for the simple sandwich. Entitlement is not in its nature.
The weathly in that book were not highly educated folk in high powered, high paying jobs with nice benefits. Most millionaires, as I discerned from the book, do not scheme to be rich, but are instead born to work hard, live frugally and save (rinse and repeat). They often run a small business where you can’t run from accountability.
So between nature and nurture, I tend to lean on nature as the primary causation for the formation of financially independent people. Financial tips and tricks go a long way, but you need the nature first. Certainly many of you will disagree.
I never cared about cars, and I can’t to this day identify models the way many people can. But my wife was different. As a poor college student working in a bookstore, she somehow managed to buy a used MGB roadster. She was quite proud of it. It was fun to drive, and we drove it across the country to CA then shipped it to Hawaii. But after several more years, the undercarriage was rusted out, and we sold it for $400. We should have charged more.