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The Good and the Bad

Ken Cutler

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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