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Many months ago, (nearly a year!) I wrote about how I finally took control of my retirement savings fund through my employer, and picked a bunch of stocks, bonds, and short-term investments. Before that, all of my retirement contributions were going into just a general savings fund. The rate of return on that fund was 0.3%. That was, and still is, 30 times the interest rate on our savings account. Remember these numbers, they’ll be important later.
So I spent an entire weekend looking through my options, taking notes, comparing funds, and investing in a wide range of different industries. It wasn’t that hard, it just took a little bravery, and then the patience to realize that these are long-term investments, so I wouldn’t be seeing any results for quite a while. What I like about this method of savings is that the funds come out of my paycheck (unfortunately pre-tax, so I will have to pay taxes on it later) and not my household budget, and since I budget my net income, it’s like money I never knew I had. I therefore can be relaxed when/if a fund that I put money into loses value temporarily. It’s because 1) I know it’ll probably come back up, 2) I only lose/gain money on paper until I cash out, and 3) it’s like it’s pretend money!
So in the period immediately after I changed my allocations, my rate of return jumped from 0.3% to 4.3%. (430 times my savings account interest rate! Holy shit!) That’s even a bit misleading, because I can only find the statement for the entire 2012 year, not just that last period, so it has to be more than that.
Another way of looking at it is by quarters.
1st, I earned $9.48 in interest.
2nd, I got $11.60.
Then I changed my investments, and the interest earned in the entire year was $196.45. That’s about $160 earned in interest between November 19th and December 31st.
And that right there is the cost of inaction, best-case scenario. All the time I’ve been working at UC, I could have been earning more, much more, than 0.3%, and I had just never gotten around to it. Oh, but wait. The lesson is actually a bit harsher than that. It gets much worse.
In January, I got a notice from UC that they considered the choices for retirement investments “too confusing” and “too many” so they wanted to “simplify” the choices, and that meant offering fewer funds and indices to choose from. As a result, they would no longer offer 5 of the 6 funds that I had chosen, and that money would instead be put into a more general fund that invests for me in the right mix of stocks, bonds, and funds for my expected retirement date.
They took nearly all of that work and research I had put into it, and undid it. The changes would take effect in March, meaning my choices would only apply for 4 months.
I was so pissed off that my work and efforts had been wasted that I did…NOTHING. (Why won’t I learn?!)
I most of my contributions go into this bullshit fund that they had set up, with the last 20% in the one remaining fund that I had chosen that they still offered. I sat and stewed, annoyed at this crap they threw at me, for another 7 months. Part of it was that I didn’t want to spend MORE time researching my new options and deciding on allocations, just to have them pull that kind of shit again. I also stopped getting paper statements in the mail, so it became easier to ignore it and to be annoyed.
So I decided, “FUCK THEM.”
And that was a mistake.
Two weekends ago, I finally decided that I needed to look at the state of my account again. Undo their damage, see if my choices a year ago had had any positive effect, just get a sense of what was going on these days. It’s also because I had recently started looking at the state of our finances in terms of net worth, and I had been ignoring my retirement savings, which in a major emergency could be used as, you know, MONEY.
So I logged in and checked my balance and realized that for all that time I’d been ignoring it, my rate of return and freaking SKYROCKETED to 18.2%.
Up from 4.3%, which had been up from 0.3%, which is vastly better than 0.01%.
Obviously I can’t ignore that kind of potential. So I spent another half day researching my options and choosing new funds, and setting up my allocations. I also moved existing cash from the UC’s BS fund into stuff I wanted to invest in.
It’s much too soon to tell if these new contributions are any better than the UC’s fund by itself. If I compare the current balances of all of my funds to what they were 10 days ago, it’s a wash so far. This is why you ignore it and only focus on the long-term. In the off-chance that their meddling actually did help, I kept some money in there and will still contribute (a little bit) to it, but mostly I think I wanna try choosing for myself.
The good news is that in less than a year, I have come close to doubling the size of the account. In the first year, I accumulated about $3,200 without any elections. From January 1st to now (not even a full year), I’ve gone from $5,594.15 to $9,679.28. I contributed $2,781.43 from my paychecks, and earned $1,303.70 in interest. (Remember total interest in 2012 was $196.00). Meanwhile, our savings account has earned $0.27 in interest in the same time period. It seems like, for the past 11 months, I’ve earned ~$1 for every $2 I’ve invested. I think that’s good, right…?