Sarah O’Brien works hard to write about personal finance.
Tried to time the stock market because I ‘knew’ where it was heading
I was at least two decades into adulthood when I decided I could see into the future. In other words, I just knew that the stock market was about to drop and would stay low for a while.
This crystal ball reading talent came about when I transferred money from an old 401(k) into my then-current retirement account. I confidently placed the deferred funds in a money market account (which is earning close to 0%) so that I could buy stocks during the impending market decline and therefore be positioned to capture gains when the market rallies .
So, of course, stocks rose in the days and weeks that followed as I waited for the big drop.
It did not materialize.
I waited months. By the time I actually moved the money into an equity-heavy target date fund – not because the market had crashed, but because by then I had developed the fear of missing out something – the shares had continued to rise.
By keeping my money aside, I missed out on those earnings – as well as any compound interest the funds would have earned, both during those cash months and in the future.
I asked a random colleague for investment advice
When I first signed up for a 401(k) plan as an adult, I only had a basic understanding of investing.
In other words, I knew that the stock market generally rose over time and was a good place to put long-term savings, such as for retirement. The details, though? Not really.
So when I had to choose from a range of funds to figure out where to direct my 401(k) contributions, I did some research: I asked a colleague near me which fund she chose. She rattled off his name. I told him that sounded good, so that’s what I decided to do too.
“Wait a minute,” she said. “I don’t want to be responsible for ruining your retirement if your investments explode.” I waved the idea aside and assured her that she was the smartest person I know.
Now, that was long enough that I have no recollection of the performance of the fund or my account balance when I finally transferred the money to another retirement account.
But that’s kind of the point: I had no idea what I was invested in.
As far as I could tell, the fund I chose was made up of “safe” investments (US Treasuries, cash) that might not keep pace with inflation and might not provide the kind of long-term growth term that the shares would have. I also had no idea what the fund was going to cost me each year in fees.
In other words, I had absolutely no idea if it was appropriate for my personal situation.
What’s wrong with a house?
I was involved in five home purchases as an adult. One of them was sold “as is”.
A friend of mine told me at the time, “Whatever you do, make sure you have your house inspected before you buy it.
I assured him I would, then quickly decided to ignore his sage advice. The seller wasn’t going to fix anything, I thought, so what’s the point of an inspection? After all, I had looked carefully during my two pre-purchase visits to the house and nothing major had jumped out at me.
Well, let me tell you in case you didn’t already know: there are a lot of things that can go wrong with a home and its property that aren’t immediately visible. And depending on the specifics, repairing them can be very expensive.
While I don’t think a pre-purchase inspection of this particular home would have changed my mind, it very well could have given more bargaining power over the price – and in the process saved a boatload interest because it would have been calculated on a lower mortgage amount.