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A mutual-fund company’s public relations representative once told me about what she dubbed the “conviction tour.” It was the late 1990s, and she and one of the firm’s star money managers toured the New York media talking about the importance of conviction when picking individual stocks. I guess they figured it was the sort of theme that would resonate with story-hungry financial reporters.
I like the idea of conviction. I think it can be hugely valuable to those with a prudent strategy. But I fear conviction could be the downfall of those who commit themselves to badly diversified portfolios or misguided financial strategies.
That raises the question: What should we commit to—financially speaking?
Promising ourselves that we’ll stick with broad market index funds seems sensible, provided our overall mix of funds is reasonably aligned with our goals. In other words, dividing your money between a total U.S. stock market fund and a total international stock fund seems like a fine strategy—unless you’re living off your portfolio, in which case you probably also ought to own some cash or bonds as well.
Similarly, I can’t find much fault with commitments to rebalance regularly, fully fund a 401(k), give 10% of income to charity or add extra-principal to each monthly mortgage payment.
So, what financial commitments have you made to yourself—and which past commitments do you regret?
I committed to “paying myself first” when I started my first job. The power of compounding just made sense to me. We saved as much as we could into 401k’s and our brokerage account, including automatic withdrawals that funded a diversified set of funds. We also paid our credit card bills off each month. This did not leave much leftover, but I told my wife that she would thank me some day…and that time is now. My regret is having the false confidence to choose my own individual stocks and actively managed funds to invest in. We did ok and I enjoyed the research, but as I look back, I realize that I could be further ahead if I just picked a few index funds and rebalanced periodically. I have been working to switch things over, but large capital gains have limited my flexibility.
I used to regret not returning to business ownership, not buying rental property, not leaning enough to buy more exotic investments. I now am thankful for the trade in more time and dodging the chance at losing big. I’m now committed to keeping a reserve of cash and bonds, while putting everything else in total market funds. I’m not seeking the thrill of complexity .
Covering at least half of college costs for nieces, nephews, and others close to us including grad school. We had to put ourselves through under our own steam aside from scholarships, and we both worked 40+/ week all the way through school.
Maxed out all workplace retirement plans, income deferrals, IRAs. It can be harder to retire early this way, but you shelter income from lawsuits (thankfully not but in medicine it happens).
Against advice we bought individual stocks mostly in tech and health care/pharma/devices, areas of our competency (except for my Chipotle early gamble, competency in burrito studies). It worked out, this will be legacy money to reprice at our deaths. Retirement money in bonds and indexes.
Big regret in ever buying houses, cars and all the junk that goes in them. We are hopeless losers at real estate investment for personal or rental reasons. Here’s to late discovery at the enjoyment of minimal space in a secured building in a great location with public transportation.
I regret not having a couple of golden retrievers through the journey, and my husband regrets not having a couple of chatty Siamese cats, but with each of us allergic to the other’s pet of choice, we have saved lots on vacuums!
As I’ve written previously, I’m committed to never participating in a real estate partnership ever again. I will never own another timeshare. I will never carry a credit card balance. I will only pay cash for automobiles and relatively big purchases (furniture, appliances). I am committed to having approximately 90% of my money invested in stock & bond index funds. I am committed to not letting everyday emotion upset my long term investment strategy.
I would say I’m committed to Vanguard, to index funds, to a 50/50 stock bond allocation in retirement and to benign neglect.
I also believe in buying less house than you can afford and paying the mortgage off early. I established a new car fund after paying off a car loan in my 40s, redirecting some of the money that had been going to the loan, so that I could pay cash in the future. I use a credit card with rewards in miles and pay it off in full each month.
I ignore the market. I avoid individual stocks, but at one time I bought shares of my former employer’s stock with an employee discount. I still own around 100 shares only because I don’t want to pay the capital gains tax. I briefly belonged to an investment club, but it was more for social reasons and I found the research extremely boring.
I began purchasing some Janus funds in the mid-90s. They went crazy during the Irrationally Exuberant days of that decade. Near the turn of the century I was warned about crossover issues at Janus, but I was committed, loyal, and trusting, so did nothing. The funds got hammered during the recession. I still made about 8% when I sold them, but probably could have made 30ish% if I had not been so darned committed.
On the positive side, when I became unmarried at age 47 I committed myself to rebuilding my financial life by saving and staying out of debt. I did buy a duplex to live in, so the upstairs tenant payed the lion’s share of my mortgage. I also committed myself to my new neighbor Chris.
We never take for granted how great these last 22 years have been.
Great topic! My top two financial commitments have been: never pay credit card interest and at least get the company 401(k) match, preferably maxing out contributions.
Good topic Jonathan. What comes to mind are some opportunities I didn’t take commit to, or didn’t take more advantage of. Very early in my career. I worked for an employee owned company. The company was growing and the stock price appreciated by about 30% per year during my 6 years. I received some company stock awards, but had the opportunity to purchase more at a discount. I wish I had scrimped and purchased more. When I left that company to go to GE, I had to see the stock. It became the down payment for our first home.
On the positive side, as our sense finished up college, my wife and I committed to maxing out both our 401ks. We put on automatic and didn’t blink during the 2007 financial crisis and aftermath. We recognized it as a chance to invest at a bargain.
The only commitment I’ve made that hasn’t worked out yet is investing in small cap value and international stocks. When I committed to these sub-asset classes, I did it with the conviction that even if they underperform the total US stock market, it wouldn’t derail my retirement.
Ah yes, Small Cap Value. I’ve often read of it as a leading, if not top performer over time. Also one of only a few asset classes where active management is recommended. Never pulled the trigger on it though either because the fund expense ratio was too high or the yield – which I always chase – was too low. Wish I’d had the patience.
Good one. I’ve made those commitments as well and am sticking to them.
This is good Jonathan. It takes into mind more than just saving. In our case, tithing is very important to us, but it goes beyond just giving 10%. We have a mindset that we are the stewards of what we have been given by God and we try to manage it as well as we can. We can say the same about other aspects of our lives also.
There are a couple of past commitments I regret. One was buying a house that made us house poor. The other was not getting educated about 401k right away when spouse’s retirement plan changed. Neither of these were fatal mistakes, we moved locations and got educated about retirement. So we are ok today Chris
I’ve more or less committed to index funds from here on out with some caveats.
Our largest bond holding is actively managed and I have no intention of changing it; in fact I just moved money there from cash yesterday.
Our two largest individual stocks are Berkshire Hathaway and former employer stock, again which I have no intention of changing. The latter is mostly in 401k so has the possibility of net unrealized appreciation (NUA) someday.
We have several other individual stocks that I’m in no rush to get rid of. We’ll sell them off gradually, or if one of us passes and cost basis resets then will change out a bunch of them at that time.
We have a few actively managed stock funds I haven’t gotten around to changing.
I haven’t bought any new active stock funds or individual stocks.