Managing my money
With time on your side, you win when the market is up—but you also win when it goes down.
My company has a 401(k), but I never joined it. I know that it would be a good way to build up retirement money, but I never knew which investments to put my money in, plus I was afraid to make the wrong choices. I’m more a cash kind of guy. But now I’m starting to make more, and I’m thinking of getting married to my girlfriend. I’ve been feeling more like a grownup, I guess, and I was really thinking it was time to invest.
Since it was the beginning of the year; I thought why not start the year off right, and I signed up, and started to contribute the maximum I could, which they told me was $750 a month based on what I made. I put all the money into this one aggressive growth mutual fund that seemed as though it had done really well over the years. The first month, fine, and the second. But then the market dropped, and the fund tumbled way down. I couldn’t believe it. By the time I had added my third payment, my $2,250 was only worth about $ 1,950—I had already lost money. I was somehow seeing my fear come to life. But I decided to stick with it. Two months later, after I put in another $750 for each of those months, I should have had $3,750, more if it was actually earning money, but when I looked at my statement I only had $3,343. I was still losing money. This was when I couldn’t take it anymore, so I went back to the human resources department to withdraw from making any more contributions to the 401(k). I mean, there’s no point in losing money. I thought at least I could wait till the market started to go up and maybe then I would rejoin.
Michael’s trouble was that he understood only the concept that when you buy something you want it to go up, better known as “buy low, sell high.” He didn’t understand that what you want to do with dollar cost averaging—which is what you’re doing with a 401(k)—is to buy low and lower and lower and then sell high. Michael had actually chosen a great fund to invest in, and since he had many years left until he retired, he should actually have been thrilled when it took a tumble. But no one told him that.
Tags: financial