You’ll never hear me complain about oversleeping, I just spent 12 hours in dreamland. Now, reality, the year-end, to take stock. Investing is most people’s only business. They lose money because they don’t run it like a business. I cannot answer the question, “Where can I put my money and forget about it?” Everything I suggest requires that you keep your own set of books and review them at least monthly. You have to compare and watch alternatives. (Remember my warning about Enron back in 1999. It was not really a warning, but I declined to invest in their stock because I could not find out what it was they did for a living.)
So, here is a set of guidelines I wrote for someone to begin on New Years. Do you know what happens to every penny you invest? It should appear on your statement as an investment or as an expense, and this is particularly true of your 401(k). Unless you’ve hired help to look after your 401(k), nobody is watching it for you, especially not your employer. They ship it off where you told them, and that is it, pal.
The point is, all investments have to be watched, the more with small investments which cannot afford professional help. Fact: 90% of people in the stock market lose money, and the other 10% average 9.61% in the long run. Keep a notebook, if you don’t know how to watch the investment, at least keep a separate log of what you spent. You’ll learn amazingly fast, especially how to read the ads. For example, my best mutual fund, the Investment Company of America, has a very low expense ratio – but only after they hit you with a 5.35% front load even if you don’t use a broker.
[Author's note: I was surprised to learn in Florida how many people actually think that their employer is looking after their 401(k) plan for them. They actually believe there is some 401(k) department that watching how well their investments are doing and shuffling their money around for them. How many times I got to tell you, companies have a 401(k) so that they don't have to babysit it for you.
This brings up an interesting point about company takeovers. I mention it here again because it's important. Before around 1990 a lot of businesses had pension plans. These plans were fully funded meaning the company actually had the cash dollar for dollar to pay out their pensions. However, federal law said that only a tiny fraction of these funds had to be backed up by cash.
Here's how the takeover works. A raider sees a company worth $25 million with $50 million in a fully funded pension fund. He offers the shareholders $10 a share more than the shares are worth, asking for one month to pay. The shareholders, who normally don't work at that company, grab this offer. The problem is the raider doesn't have the cash until he gets into that pension plan. He now owns the company, takes $35 million of the pension plan to pay for those shares, votes himself a salary of $10 million, leaving $5 million in the pension fund for when the company goes belly up next year. All of it perfectly 100% legal.
