The Amateur Investor (Thanks to Queenbee for allowing me to post this piece on her blog) Thank you Mammoth for taking the time. QB Recently some of us may have raised an eyebrow after listening to friends, relatives and colleagues complaining about their 401k taking a beating in the second quarter. With the writing clearly on the wall that this economy, and thus – the market, are not ‘out of the woods’ yet, it seems amazing to some of us that so many people still have their money invested in such vulnerable stocks & funds. Let’s take a look at one typical American couple. (Perhaps they are more frugal than average, as they drive paid-for cars and their only debt is their mortgage.) They both have decent jobs, contribute to their 401k’s, and own a house. - Back in 1999, after hearing how well the stock market had performed for the past year or so, they bought into two Janus mutual funds – put in a total of $9,000 – right at the peak of the Internet bubble. A few years later, after assuming the evaporated value would never materialize, they redeemed their hollowed-out holdings for 1/3 of what they originally paid. *DUMB* - In 2001 they moved, and since they’d managed to save 5% down payment on their new home they decided to keep their old house as a rental. Meanwhile, they continued to squirrel away money in their 401k’s. In addition, rather than buying all the expensive toys like so many of their fellow Americans, they worked on paying down their mortgages by adding some extra $$$ every month. *SMART* *SMART* - And being enlightened, when their tenants moved out in 2007 they decided to sell their old house and pay off their residence with the proceeds. Thanks to selling at the housing bubble’s peak, they did very well, and had $35k left after paying off their residence, which went into a downpayment for the adjacent 2½ acre property. It has a 4-stall horse barn on it, and with $2,500 plus ‘sweat-equity’ invested in it, the barn & property now have water, electricity, and fencing, and is bringing in $500/mo rent. *DUMB or SMART?*  - Cashed out two out of three 401k’s when the DOW was at 12,500. Spent proceeds on an international adoption. Since the early-withdraw penalty equaled the adoption tax break, this penalty was a wash. *SMART (Providing good parenting is a good investment for the world’s future)*  - This couple was also red-faced last week when reviewing their 2nd quarter 401k statement, because they ‘hadn’t gotten around to’ moving additional funds into more stable ones. *DUMB* - Next on this couple’s investment plan is to put in a driveway, septic field, and mobile home – and to rent this out. This investment will cost $60k and return $1,200/mo. But most of this will come from a HELOC (home equity line of credit) they just took out. *DUMB or SMART?* - An internal audit turned up some accumulated goods which were not being used, so these are either sold or are in the process of being sold.  *SMART* There is an old Russian saying, "Life are striped. There are white (good) stripes and black stripes." Well, people are, too. And so are their investment decisions. To remove the emotion from these may be the key to good investing; however we are all human and so we do what we do. Thanks again, Queenbee for letting me guest-post here! -Mammoth |