This year has brought a lot of changes in my life – most all have been positive. I feel I’ve learned a few new things, solidified some past beliefs, and created some new ideas to test out in the coming years.
One of the things that I’ve pondered and built a slight regret over is the way I built my retirement investment portfolio. I thought I was being smart about it. I thought I was being clever. I thought it was difficult out of necessity. Now, I am of the belief that it never should have been hard.
At this point in my life, I now have five retirement accounts: a Roth IRA, two Traditional IRAs, and two 401ks. I may be simplifying things greatly in 2012 to align with my new investment strategy. That strategy is simple and old-school: compounding.
I’m not sure exactly when it became en vogue to have pure growth stocks and funds. From what I have read, it sounds like it was a little before I started investing. Being naive when I started, I simply bought funds that had high return numbers. They looked great on paper because they were growth funds. I did this for quite a while. When the dot-com bust happened, my portfolio crashed with it, but I told myself, “I’m getting an opportunity to buy low and I’m not retiring anytime soon.”
I moved on to another job and tried a different tactic, buying different classes of investments. As time went on there, I was tracking my investments in MS Money and found myself making additional transaction entries for reinvested dividends on one of my funds. I found this mildly interesting.
Another job and another chance to choose new investments. This time, I allocated a bit more to a fund similar to the one paying me dividends at my last job. This choice paid off well when the housing bust came along and most all my funds tanked, while the income fund kept increasing in quantity, reducing the loss I was seeing in all the other funds.
When things started turning around, I was able to say “Yay, I’m back where I was five years ago” for most of my funds, but for the ones that reinvested in themselves, I was so much further ahead because their quantity increased and price increases had a much stronger effect. And that’s the key.
Of my five retirement accounts, only two are active: the Roth IRA, which I continually contribute to, and my current employer’s 401k. Everything else is just stagnant. So as the market gyrates, the values of those accounts goes up and goes down. They are not living and growing like my active accounts. If they had funds that would get dividends and reinvest those dividends, it would be like me adding money to them all the time.
So that is my regret. If I had known then what I know now, I would have always invested my money in income-bearing funds. People will say, “That’s too conservative” or “You won’t get a good return” or “You need to be exposed to stocks” or any of a range of criticisms, but my money will always be working for me, living and growing.