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LIKE EVERYBODY ELSE, I’ve made both bad and good decisions during my financial journey, and those have affected the financial well-being of my now-older self. Here’s what I consider my five worst financial decisions, followed by my five best:
1. Contributing too little to my 401(k) early on. I’ve confessed to this in a prior article. I missed out on a lot of potential growth by making only token contributions to my 401(k) during my 20s. If I’d saved an extra $2,000 in each of my first five years of 401(k) eligibility and invested that money in an S&P 500-index fund, my balance would have been more than $250,000 higher when I retired in September.
2. Playing it safe with my asset allocation. Throughout almost my entire investing life, stocks have appeared to be priced too high. Remember Greenspan’s “irrational exuberance” proclamation in 1996? My younger self took this kind of statement to heart, and I was far too conservative for decades. Stocks were rarely more than 50% of my portfolio, even in my 20s and 30s.
3. Timing the market. Here’s just one example: I was convinced that, regardless of whether Clinton or Trump won the 2016 election, stocks were headed lower in 2017. I sold some stock holdings in October 2016, and moved the money into cash investments and short-term bonds. Result: Less of my capital benefited from the subsequent high-growth years. After that humbling mistake, I adopted a practice of benign neglect with my 401(k), and that’s turned out far better.
4. Managing my Roth IRA poorly. I opened my Roth in 2004 and invested it aggressively from the outset. In 2008, my portfolio lost almost half its value. Rather than waiting out the decline, as I should have, I sold low and moved all my money into certificates of deposit and money market funds. It was several years before I got around to moving the money back to a brokerage account, where I could invest in stocks. Meanwhile, I again lost out on a lot of investment growth.
5. Keeping too much in low-interest bank accounts. I probably still have too much cash in bank accounts, but sometimes I get lazy about moving it out. Still, these days, I have a large percentage of my cash holdings in a higher-yielding brokerage cash account.
Meanwhile, what did I get right financially? Here’s my top five:
1. Purchasing inexpensive vehicles for almost 40 years. I talked about this at length in a previous article. I’ve always prioritized reliability and value when purchasing a car. Status, which doesn’t have a quantifiable financial benefit, has never been a consideration.
2. Staying put in an appropriately sized house. We’ve only owned two houses, so our lifetime losses to transfer taxes, realtor fees and the like are pretty low. We could have afforded—with the help of a mortgage—a much larger first home, but decided to buy only what we needed at the time. Our current home, where we’ve lived for 23 years, still feels perfect to us. By purchasing only what we needed, we’ve never had to take out a mortgage, which means we’ve not only avoided mortgage interest, but also we’ve never had to pay mortgage-application fees or mortgage insurance.
3. Getting serious about saving after age 30. Although I didn’t make funding my 401(k) a priority before I was married, I got aggressive about contributing thereafter. Not having a mortgage freed up cash flow, and that allowed us to shovel hefty sums into my 401(k). Even during the years when we were pulling from savings to fund our children’s college educations, we were able to save a significant percentage of my salary. We also maxed out our Roth IRAs in each of the past 12 years.
4. Working 38 years at a company with a pension plan. The name of my company and the terms of my pension changed several times over my career. Still, I continued to be covered by a pension throughout all 38 years. I never had one of the top-paying positions at the company, but I did stick around longer than most. The monthly pension payouts will be the cornerstone of our finances for the rest of our lives.
5. Marrying my wife. This was my best financial decision. It’s not because I married someone who was rich or was a high earner. Indeed, Lisa has been a homemaker for most of our married life. Rather, having a stable marriage is correlated with wealth accumulation. Marrying and having children increased my sense of purpose during my career. Compared to when I was single, I found I was more content at work. I suspect that led to improved job performance.
Lisa and I have a good friendship and a high level of trust in each other. Divorce is so far from being a possibility as to be laughable. I’ve never had any qualms about maintaining joint accounts or funding her Roth IRA from my income. Although we might disagree on spending priorities, we always manage to come up with a plan that works for both of us.
Have the outcomes of the good decisions sufficiently outweighed the effects of the bad ones? I think so. We aren’t particularly wealthy. But financially, our retirement should be just fine.
Ken Cutler lives in Lancaster, Pennsylvania, and has worked as an electrical engineer in the nuclear power industry for more than 38 years. There, he has become an informal financial advisor for many of his coworkers. Ken is involved in his church, enjoys traveling and hiking with his wife Lisa, is a shortwave radio hobbyist, and has a soft spot for cats and dogs. Check out Ken’s earlier articles.
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Hello again Ken. We think alike! I drove our ’71 Ford Maverick for 26 years, then a Ford Expedition that we treated ourselves to (paid cash), drove that for 17 years and got rid of it at 180,000 miles. Then picked up another used Expedition (2 years old – paid cash), and have been driving it for 11 years. We purchased a small row house in Philly when we first got married (very affordable!), saved diligently for 5 years and then purchased the nice stone Cape Cod home that we have been in for the last 44 years. We got a 10-3/4 % – 25 year mortgage on it with a 50% down payment, but prepaid on the principal and were able to pay it off in less than 10 years. I too started saving diligently in the company 401(k) plan as soon as it became available, but, like you, was wary of the stock market, and invested in GIC stable funds for the first few years. After many years of studying the market, I took the plunge and have maintained a balanced (~50/50% Equity/Bond) portfolio since then. It’s meets our risk tolerance, continues to grow, and allows us to sleep at night without worry. We also took advantage of making full contributions to traditional IRA’s when they became available, and then to Roth IRA’s. My wife too was a stay at home homemaker, and we fully funded her IRA’s each year. I was able to take advantage of an early retirement package as a result of the company merger in 2000, since I had a nice pension after about 30 years of service and funding my 401(k) and IRA’s over all those years. We always took care of the lawn, landscaping, minor maintenance work around the house and car, never had a credit card balance, never had to take out any loans, put both children through college with no student loans or debt, and still live very comfortably. We are very thankful for the same company that you also worked for all those years, and being able to save and do things – yes, we took vacations every year also ( but only those we could afford to pay for–no debt!). Great hearing from you, and I’m happy that you are doing well in retirement!
Hi Fred, thanks for chiming in and sharing your story. Always a pleasure to hear from you.
Thanks Ken. We’re blessed to have good health, and wonderful spouses! We’ll soon be celebrating our 50th anniversary, and have had wonderful experiences together all these years. She’s frugal and thrifty, just like me!
Great article, Ken — again. I always enjoy what you write.
I’m kind of on the opposite side when it comes to having a mortgage — I love it. I don’t like leaving money in the walls of a house. I re-fied several times in my California home, which because of rocketing real estate values became a regular cash machine. And I put that cash to work in all kinds of ways.
My wife, however, has always wanted to live in a mortgage-free house, and I suspect she will pay off our house with my life insurance benefits. (In about 20 years, I hope!)
I think you should try out the mortgage-free life as a gift to your wife. Later you will realize it is a gift to yourself too!
Mike, thanks for your kind comments. Glad your approach has worked for you. California is a different animal when it comes to real estate.
Roth accounts should be 100% Total Stock imho
I as well made the mistake of not buying equities from the get go as rates were so high in the late 70-80’s
Read Simple Wealth by Nick Murray to be convinced how to invest for the long term-BRILLIANT writing
In this week of thanksgiving, I urge you to look at the bright side of your five worst:
Now THAT is a great comment.
Jo, I am very thankful. I’m not wasting time with self-recriminations about my bad financial decisions. I’d rather keep it light and let others learn from my experience. Thanks for your positive spin!
If I had done everything perfectly, I’d have $50 million. Since I didn’t, well, I am content. The number of people who know exactly what to do from the time they get out of college is very small.
What the heck would you do with 50 million anyway?
For shame Ken, you should have been listening across the Delaware in 2008 when I was telling employees to do nothing.
About that house, I have one word STAIRS. That’s what caused us to move to a condo after 45 years in our home.
I hear you about the pension 👍
Stairs are an issue in our house. Any thoughts regarding installing a stair lift vs. moving?
Thanks, Bill
I’m sure installing a stair lift will be far less expensive than the cost of selling your house and moving. My aunt installed a lift decades ago and is still in her home.
Yup! 100%!!
STAIRS
That’s why we, too, moved from our house of over 4 decades to a one level condo.
I will repeat, yet again, some advice gained from bitter experience.
If you are at all considering NOT “aging in place” start getting rid of your … stuff … NOW.
Wish I had you or HumbleDollar to advise me back then. I’m not too concerned about stairs at this point. My parents and my in-laws were fine living in two-story houses well into their 80s (and in my mother-in-law’s case, almost 90 and counting). I know things can change, but neither my wife nor I have knee issues, and we ‘invest’ in our legs at the gym.
Yours is the right approach. The people who are still climbing stairs in their 80s are the people who never stopped climbing stairs (especially if they’re also doing squats and deadlifts at the gym).
Ken, you’re right, I can make my own list of good and bad decisions. Our lists vary a little, but both include a stable marriage. That would be a good exercise by itself—a list of all the good that’s come from my marriage, contrasted with the bad that probably would have occurred without it. I’m not saying it’s so for all, but my wife truly completes my life.
Wow, did I understand correctly that you never had a mortgage? That must have been an incredible benefit financially. It is funny that I am thinking now what a victory it was for us to pay ours off in early 40’s. Can’t believe it, but I think I would miss that rite of passage!
Jamie, you can read about that here: https://humbledollar.com/2023/07/no-interest/
I remember that article and agree that mortgage free provides great peace of mind. Like you I’ve never done the mortgage/no mortgage math either. Regarding those who re-finance to capture lower interest: many error by doing the re-fi for 30 years when they are 10 years into their current mortgage. They end up paying more interest with the new lower interest loan than they would have if they stayed put, not to mention closing costs.
I refinanced our 30 year mortgage 5 years in during the ‘09 Russian debt crisis as I knew that the treasury rates (and thus mortgage rates) were plummeting due to the flight to quality. Took out tens of thousands of dollars for our children’s education with a new 15 year mortgage and paid about $100 more per month. Put money into CDs. When time for college put payments on credit card to get points. Took money out of CDs to pay off the tuition payment then rolled the balance over into another six month CD.
In 1998