It seems like dealing with money should be simple. We earn it; we use some of it to pay our expenses, and then we save the rest of it, hoping that it earns us something extra in the meantime. However, the handling of money often becomes more complicated than we expect or want it to be. And as our money situation becomes more convoluted, we can make moves that backfire, harming our financial situation rather than helping it.
Taking on a bi-weekly mortgage plan
We thought that taking on bi-weekly mortgage plans would be a good idea after we bought our first home, but it was really just something we paid for but that could easily have done ourselves. The application and transaction fees ended up costing us over $350. And all the plan really did was break our 12 monthly mortgage payments into 26 bi-weekly payments, in essence, adding one full extra payment each calendar year, which we could have done ourselves just by transferring money from our bank account to our mortgage account…for free I might add.
Trying to time the market
We’ve had horrible luck trying to time various markets. For example, during the housing market collapse, we bided our time and waited for prices to level off in our area of Chicago. Home values had dropped by 10 percent from their all-time highs, and then took a breather. Therefore, we bought a home only to see another 30 percent drop in prices after we closed.
The same thing happened when I sold company stock I had obtained through a stock purchase plan. I’d made about $3 per share, which was a nice 30 percent profit. Not wanting to get greedy, and not seeing much movement in the stock market, I sold, even though I didn’t need the money and was still in my 20s. The stock went up by another $30 over the next five years, teaching me a valuable lesson about impatience and trying to time markets.
Being too conservative too early
I realize now that I was too conservative in my early earning years. I put nearly half of my retirement account contributions into a bond fund, which while stable and secure, also limited my returns during a time when I had decades to make up losses. After the financial crisis, I also moved much of my retirement account into a more conservative dividend reinvestment fund, which provided steady returns, but at rates far lower than the pace of the recovering market.
Therefore, while a conservative investment strategy can keep money safe, when there is time to make up losses, it may have been worthwhile for me to put a bit more of my money at risk in an effort to reap greater rewards over time.
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Disclaimer:
The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.
