Wednesday, June 13, 2007

Welcome SmartMoney Readers!

Greetings to all the new readers who landed here by way of SmartMoney magazine! I'm extremely honored that you decided to drop by!

I'm Michael (obviously), the guy behind and its tag-along blog, Money Musings. I'll be honest: If I'm going to make it into a glossy financial mag like SmartMoney, I'd prefer to be featured in just about ANY article that isn't titled "7 Money Mistakes to Avoid."

But that's how it goes, right? Keeping my 401k way too heavy with cash while I was in my early 30s won't be the last money mistake I make. Should you decide to hang around my site and blog — you could even subscribe to both of them via RSS, which would be awfully cool — I can pretty much promise that you'll get to watch me do dumb stuff in the future, too.

So What Would You Say You ... Do ... Here?

Well, I write a lot about money, which by extension means I write a lot about life, and I've been hard at it since 2002. You'll find me discussing such varied topics as credit-card arbitrage, loaning money on Prosper, those darn Overdraft Whiners, and tons of others. Oh yeah — I can even write about what minimum wage could buy you in 1973 versus 2007.

You Have So Much of Your 401k In Cash ... Why?

The problem, I think, occurred on two levels. For one, my focus was elsewhere. It's amazing how quickly four or five years can fly by when you're engrossed in certain aspects of your financial life. Getting out of debt and building liquid savings took all my attention away from investing and from doing what I needed to do with my 401k.

Oh, all my new 401k contributions have been going into the market since ... well, since forever. I was an avid market follower and participant until, as my About Me page says, my Money Focus changed dramatically. I zeroed in on debt payoffs and savings build-ups, and having moved a huge chunk of my account into cash in late 2000, I simply never got around to doing what needed to be done: moving it back. At least, not all of it. At one time in 2001, you see, my 401k consisted of more than 70% money-market cash. How 'bout them your-return's-not-even-matching-inflation apples?

The second "level of causation" for my Monumental 401k Blunder is much tougher for me to stomach. I just became ultra-conservative in the face of what I saw happening in the markets in 2001. Why is it hard to stomach? Because I absolutely knew better.

From 1997 to 2002 I was a spare-time student of the markets, reading everything I could about investing, trading, economics — you name it. I started and ran an investment club for several years. I opened up Roth IRAs for my wife and I, and began purchasing individual stocks. All these were easy for me to handle. But they were all done with small amounts of money — nothing like the tens of thousands that were riding in my 401k account.

Like everyone else's in 2000 and 2001, I'm sure, my retirement funds took a pretty nasty haircut. Everything I knew about long-term investing and "time is your greatest ally" went, at some point, out the proverbial window.

Loss aversion kicked in, topped with a creamy side of mental accounting (I was fine with putting "new" money in the market, but I kept my "old" cash — the stuff I'd moved to money-market funds — out). Next thing you know, here we all are, so many years later: Greenspan's on the sidelines, the Dow's doing its thing, and I'm the interviewee for a major financial-mag article on seven ways apparently-smart folks effectively pour their cash into a blast furnace.

(Behavioral economics is fascinating, by the way, and if you're up for a great book on it, take a look at Why Smart People Make Big Money Mistakes (my review). In case you're wondering, yes, I botched-up my 401k despite having read this book years earlier ... and having reviewed it in 2003.)

If You've Read This Far...

If you're a new reader, and you've stuck with me this far, I'd like to think that we've made at least some sort of connection here today. I'd love to hear from you, either by email or comment, especially if the Smart Money article prompted your first visit to this site. Oh, what the heck: Go ahead and subscribe, too! I'd really like to see you come back!

Besides, if you bail now, then how will you ever know what I screw up next time?


— Posted by Michael @ 10:10 AM

** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
[About Our Debt Paydown]


Savings Goal: $15,000
Currently: ~$15,115
[About Our Liquid Savings Goal]