Comments on: Reactive vs. Proactive Finances

By: Floridian

Floridian — Wed, 30 Dec 2009 19:11:50 +0000

I’ve reviewed the vanguard statistics, and don’t disagree with them…and I can personally attest to Darwin’s comment above. We are in our early 30’s and we’ve stayed the course on retirement throughout the last couple of years (rebalancing as necessary, but not changing the percentage goals, and certainly not bailing on equities at the bottom, as many others did). It hurt to look at the losses in our portfolios this time last year – we lost over 20K But we kept contributing. Those constant contributions, especially the ones made at the bottom of the market, have earned a huge return this year. The returns on those contributions, added to the returns on (what was left of) the original amounts in the portfolios, helped the portfolios to surpass their prior highs several months ago.

By: Doctor Stock

Doctor Stock — Wed, 30 Dec 2009 06:13:57 +0000

Great… and the same applies to taking your investments into your hands. Reactive takes a look at things at year end… active and proactive rebalances as needed (not once a year).

By: EZ

EZ — Tue, 29 Dec 2009 21:49:46 +0000

Great post. I really like the way you think about finance. The first place I started when I tried to get my financial life in order was to track every penny I spent for 2 months. Then I studied the list of things I spent money on and decided what was important and what was not. The money I saved from the reduced spending went into a savings account. Within 1 year I paid cash for my next car and continued to make car payments to my savings account. I think getting proactive with what is really important in your life gets the financial ball rolling in the correct direction.

By: Daniel

Daniel — Tue, 29 Dec 2009 20:53:23 +0000

@Darwin I agree with your comments, it was a long post and I picked one thing I didn’t like. Vanguard spins things in ways that I think aren’t quite right. Of course, the better the market does, the more people will want to invest, so they make it sound like everything is ok.

I’m also a huge proponent of dollar cost averaging, and I think it’s silly to take your money out when things are going terribly. That’s the time to invest, but people don’t seem to be able to do it.

I’m a huge believer in dollar cost averaging. Thanks for a really interesting post!

By: Craig

Craig — Tue, 29 Dec 2009 17:02:50 +0000

Being proactive with finances can save a lot of stress down the road if anything should happen or there is a purchase you are saving for. Makes things easier down the road.

By: Darwin's Finance

Darwin's Finance — Tue, 29 Dec 2009 16:32:59 +0000

Thanks for your comments Dans,

I agree that from a pure numerical standpoint, with the market still well below its previous peak, an appreciable portion of the gains have been through actual contributions, BUT by dollar cost averaging in during the prior year at such low levels and not jumping ship at the worst possible time, patient/consistent investors are in much better shape than those who panicked and deviated from their prior investment strategy.

I had indicated in the post that much of the gain back was from contributions, but facts are facts and this is what Vanguard is reporting – many of their investors are back to even. However, the intent of the 401K is a long term retirement vehicle, and by jumping out at the bottom and they eventually deciding to go back into equities again when we’re 65% up from the bottom, they will have missed massive gains and traded them for a 1% return in income assets.

Personally, my account is a few thousand higher than its prior highs, but it’s all a function of what your peak dollar amount was and what your % investment is each month. I’m in my early 30’s so I didn’t have $2 Million in there. For a 59 year old executive with a 7-figure account that was 100% equities, even if they’re maxing out their monthly contributions, they will still be well off their prior highs.

By: Dan

Dan — Tue, 29 Dec 2009 15:55:44 +0000

I happen to agree with Daniel. I went back to grad school in the Fall of 2007, and managed to make some contributions into early 2008. I’ve left my contributions where they are, and will (finally) be getting back into the market next month — and let me tell you, my account is nowhere close to break-even — try closer to a 25% loss from its peak.

So yeah, Daniel’s right. Putting more money on top of those losses says nothing about the health of the market. (And I am planning on getting back in next month.)

By: Daniel

Daniel — Tue, 29 Dec 2009 13:50:53 +0000

“Vanguard notes that 60% of 401(k) accounts now have more money in their accounts than prior to the start of the crash”

That includes contributions from the past 18 months, however. Many of these people have earned less than 0% on their money in the past year and a half. These contributions are a misleading statistic that say more about people’s saving strategies than about the health of the market.

For example, if I had $100,000, lost 40% in the crash, then gained 33% back, but in that time, contributed $20,000, I’d be back to even. However, my return on investment would still be -20%.

By: Ken

Ken — Tue, 29 Dec 2009 13:34:46 +0000

Being proactive means getting adequate life insurance for your family. Not being insured is reactive and can sink your financial ship.