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Disagreement after the market drop

March 2nd, 2007 at 12:17 am

In my last post I mentioned that the 400 point drop in the market yesterday didn't bother me and I wasn't planning any trades because of it. My husband, on the other hand, came home and said that the drop and Greenspan's prediction of a recession indicated we should watch the volitility of the market and be ready to move some or all of our holdings into cash, and to sit on the sidelines for some time (how long was unclear to me). We got into a minor argument about investment philosophy -- the same one we had 5 years ago that shut down our communication on investing. It was never resolved and we've only contributed to our separate retirement accounts since then. This is a mistake I don't want to make a second time, so I asked him to promise me we'd talk more this weekend.

My investing philosophy to date has been buy and hold and hold and hold and hold...to a fault. I had some AT&T stock (from an employee stock purchase plan) that went way way up, split into many companies, and collectively went way way down before I cashed out at a loss. I should've paid more attention to it and cashed out years sooner. I also tend to let money just sit in my funds, not rebalancing them or making moves based on performance. To be honest I don't find investing all that interesting. I've realized that I do need to understand my investments better and be more proactive about them.

DH's investing philosophy...I guess I don't really understand it. We don't even agree on what the definitions of "market timing" and "long-term" mean. When he says we should hold off on investing because the market is high or move into cash because a recession is coming, that sounds like market-timing to me. He says it is not because he is not proposing moving in and out and in and out of the market on a monthly basis. I think "long-term" means a minimum of ten years. I'm not sure what he thinks is "long-term", but he has said he doesn't believe in holding things for ten years. DH does not believe in "buy-and-hold" -- he blames that philosophy for influencing him to hold on to a stock that he knew was on the way down, and ultimately resulting in a $20k loss. It's hard for me to judge DH's investing philosophy -- he hasn't been actively managing much money since we married. On the other hand, he pursuaded me to do some rebalancing in my IRA, and the funds he picked have been the best performers of the lot.

I don't feel like I understand what we have and why we have it. I want to understand it before making any moves. DH listens to the market news and wants to act quickly. And so every conversation we've had about investing turns into a minor argument.

I just started reading a book called The Intelligent Asset Allocator. I've seen it recommended by some people who seem to be the kind of prudent investor I want to become. DH says he doesn't know anything about asset allocation theory. I am hoping it helps us to find some common ground.

Philosophical Differences

February 6th, 2007 at 11:59 am

DH and I are mostly on the same page financially, but there are a few areas where we’ve got philosophical differences. We agree on never carrying a credit card balance, on putting 20% down on a home, that money that’s been invested is basically locked away, and that it’s good to have an emergency fund in case he gets laid off.

Cars are one area of disagreement. I was taught to look for a car that was 2-3 years old and 20k – 30k miles, while he and his family believe in buying new. I hate car loans while he believes anything under 2% is a great deal and should be taken advantage of. Having a really “nice” car gives him a lot of pleasure. He cares about horsepower, I care about trunk space. He’d like to get new cars every 5 years; I’d like to make them last at least 10. (To be fair, I have to admit that I only kept my last two cars for 5 years each, although they did both hit 100k miles.) When I got pregnant, we bought a new SUV for me, with all the latest side airbags and so forth. A year later, we bought him a new car. We compromised in that I agreed to take a $7k loan at 1.9% in order to get the car he really wanted without dipping into our emergency fund or selling off investments. I remind myself that it’s only costing us $300 over the life of the loan, and I’d gladly spend $300 on a present for him.

When we met, I was putting 15% into 401k and he was putting in only up to the company match, maybe 6%. We compromised at 10% each for a few years, but had to cut back when we went to one income. Currently we don’t like the funds in his 401k and his company doesn’t match, so we are prioritizing contributing to the ROTH IRA first.

Gifts are another area where we differ. His family is very generous with presents, and DH is naturally generous as well. I probably tend to be a bit on the cheap side. With friends birthday parties and the like I sometimes worry that giving too expensive of a gift will make the other person uncomfortable, as they may feel under pressure to reciprocate. In our budget I’ve just allocated an envelope for gifts and funded it according to how much we spent the previous year rather than trying to bring the amount down.

Traveling is very important to DH. I love it too, but don’t mind giving it up for a few years so I can be a SAHM. I think the cutback in traveling is what pinches the most about not having two incomes. DH really wanted to set up a trip to Hawaii this year, but unfortunately we don’t have the money right now, and have some higher priority items to save for first. He talks a lot about the places he’d like for us to go see, and I have to be careful not to squash his daydreams.

I like to get down and dirty with the numbers on our spending. For years I would periodically download all our transactions into Quicken, make lots of graphs, set up a budget, and contemplate the results. Quicken is impossible for truly tracking and sticking to a budget, however, and I am much happier since switching to an envelope system. I make up spreadsheets with our mutual funds and net worth, and puzzle over what I should understand as a result. I sometimes get too caught up in getting all the little details recorded accurately rather than in comprehending the big picture. DH, on the other hand, is more intuitive. He will look at our bank balance, mentally subtract the large upcoming payments like property taxes, and quickly make a judgment on whether we can afford a big purchase. He’s usually right, too!

Speaking of big purchases, I have to be pushed to spend money even on things that really enhance our lives. We spent a lot of money on remodeling the kitchen and bathrooms, and have gotten a lot of pleasure out of them – very worth the money, but without DH’s influence I would’ve held back.

The first time I read The Complete Idiot’s Guide to Getting Rich, I got a bit depressed for a few days because we weren’t saving my calculated Target Savings Goal each month (and I didn’t realize that our investments were returning as much as they are.) We had a big conversation about whether it was worth being super frugal now in order to retire very wealthy 20 or 30 years from now. We decided to go for more of a balance – spend some and enjoy life a bit today, while still saving enough for a comfortable (but possibly not wealthy) retirement.

A final point I almost forgot -- investing! I favor buy-and-hold (to a point that is detrimental as I've missed out on selling declining stocks) very long-term investing, loaded mutual funds (Dad's influence there), and using a full-service broker. DH trades individual stocks through a discount broker, looking to make a profit within a couple of years. When we first met he talked about the ups and downs of the stock market so much it drove me crazy, as I really had no interest in individual stocks (and my eyes still glaze over). He hasn't been trading stocks much since we married -- I'm afraid I've really discouraged him by not wanting to join him in it.

How much is enough?

February 3rd, 2007 at 02:16 pm

Shortly after I graduated and started working, there was an article in the "Living" section of the local newspaper. You know, where they put the fluffier human interest pieces as opposed to hard news. It was entitled "How Much is Enough?" and really had an impact on me.

The journalist had interviewed many people at many different income levels, and asked two simple questions, "How much are you making now?" and "How much would be enough for you to be comfortably well-off?" The person making $15,000 said they were just getting by, and thought $30,000 would be enough to live very comfortably. The person making $30,000 said the same, but they thought $60,000 was where well-off started. The person making $60,000 thought $120,000 was the magic number, and so on and so forth up to the family bringing in $5 million. They said that the yacht and the horses and sports cars were all very nice, but they wouldn't really be well-off unless they had $10 million! Now I'm sure that there's a lower limit to this, and I bet the top end was a setup, but basically the point was that everyone thought that about twice what they currently had was "enough".

At the time I had just started my first "real" job, and I was making $36,000. One of the perks of engineering is the high starting salaries, and it was easily more than enough for a single person with no debts in a low cost of living area. I resolved then and there that I would always look at whatever I was making as "enough". I've been stumbling with this a little bit lately, as we can't afford to do the amount of travel and home improvements we used to do when we had two incomes. But overall we are definitely blessed to have much more than "enough".