Improving Your Investments: How NOT to Be Dumb Money (Usually), Part 3

Part 1

Part 2

By 1993, we had lived in Massachusetts for 11 years, had investments in stocks and 401ks and had bought our first house.  But, we felt we needed a change, and Jim had an opportunity to work at a small software company in Pittsburgh.  Our challenge in early June of that year, just after Leslie had finished 7th grade, was to find a house in the Pittsburgh area, then pack and prepare our Massachusetts house for sale.

We gave ourselves one day to find the new house so we could return to Massachusetts.

Since Jim had grown up in the Pittsburgh area and I'd lived there for four years, we knew we wanted to live in the South Hills.  We wanted to be close to mass transit since Jim's new job would be in the city.  We made one decision that was simultaneously good and bad.  We had savings but not enough for a house down payment.  So Jim chose to cash out his 401k which would give us about $40,000 for a house down payment, some new home fix-up, and for the extra taxes we'd have to pay the next year on cashing out the 401k.

Pittsburgh houses were cheaper than Massachusetts houses, so we knew we could find a house for less than we'd paid for our first house.  I'm not sure how many houses we looked at that day; at least 6 and maybe 8.  We looked at houses in Mt. Lebanon, Upper Saint Clair and Bethel Park.  Our agent kept driving by a little house for sale which was across from the high school in Mt. Lebanon.  We finally looked at it late in the afternoon, a bit reluctantly as it looked too small.  It turned out to be larger than we expected - the attic was finished and it had a master bedroom addition off the second floor.  While it was about a 70 year old house, it was in reasonable shape and shouldn't need too much work.  We put in an offer for full price which was accepted.

Three weeks later, Jim moved to Pittsburgh to start his new job; he lived with his godparents for a few weeks until he could start to move into the new house.  I remained in Massachusetts, working on packing and getting our house ready for the market.  Once Jim closed on our Mt. Lebanon house, I put Leslie on a plane to Pittsburgh so she could adjust to her new home.

In 1993, the usually hot Massachusetts housing market had cooled a bit.  We got an offer on our old house that was a little low, but we took it so I could move to the Pittsburgh area.  The inspection found a couple of minor problems - we needed to rebuild the wooden stairs into the house.  I hired a friend to rebuild the stairs, then quit my job and moved south.

But...almost as soon as I got to Pittsburgh, there were more problems with buyers.  Now they were demanding cosmetic changes.  It was one thing after the other and so...we pulled out of the deal.  That was a risky decision - we now had two mortgages to pay.  We thought the Massachusetts house would sell pretty fast.

We were wrong.

There weren't a lot of tech writing jobs available when I got to Pittsburgh.  I think I only sent out one or two resumes, and I needed a job immediately so we could cover two mortgages.  It turned out, we were only 2 miles from a Borders Book Store that was looking for a new bookseller.  I did the math and realized the Borders job would just about cover 1 mortgage each month.  I aced their test and found out they really wanted someone with computer experience to oversee their computer book section, so I was hired and started the next day.

We were very cautious with money during this time.  Since I got a book discount, we bought more books.  And we went to the movies.  That was about it.  Jim's new job had a 401k so we started investing in that as soon as we could.  We still had some Stratus stock, but I learned I was a terrible market timer.  We held onto our Stratus stock until it fell to $2 a share - way too long.  Eventually, the company was bought and disappeared.  But because we were very careful, we managed to avoid adding non-mortgage-related debt at that time, even if we weren't expanding our investments.

Eight months after we pulled out of the deal on our Massachusetts house, it finally sold but for even less than we expected.  The new price covered what was left of the mortgage; I think we got a check for about $500 after the mortgage on the old house was paid off.

I stayed at Borders about a year, then found another tech writing job.  It wound up being kind of an odd job with very strange politics.  When my boss and his assistant quit a few months later, I decided to leave with them.  I'd had an introduction to the World Wide Web at that job, and learned HTML right away,  I started building Web pages.  For a few months, you could make $30 an hour if you could code HTML, so I made a little money at that.  Soon, there was software that would edit HTML for you, so HTML coding quickly became a minimum wage job.

Found another tech writing job with a miserable commute.  I only lasted there about six months as the commute was pretty wearing.

Finally got a tech writing job that I liked at an interesting company called ANSYS.  The pay was good, and the company had a stock purchase plan as well as a 401k.  I was able to invest in both.

After about four rocky years, we were able to save and invest more seriously.  We started to travel and set money aside for Leslie for college.

I remember in the 1970s there was a book called something like "Your Wealth-Building Years."  For us, our wealth-building years were finally starting.

Improving Your Investments: How NOT to Be Dumb Money (Usually), Part 2

Part 1

Part 1 was basically "try not to live beyond your means."  I think if there had been cheap ways to invest in stocks to the early '80s, we might have opened our first stock account then.  We had a little savings when we moved to Boston, and strongly considered getting rid of our car since we were on mass transit again.  But, we felt a car was useful, particularly since we had a child.  For the next few years, Jim took the T to downtown, and I had a car during the day.

After about 18 months in a Boston apartment, we moved to Newton Corner to rent a very old "town house." Basically, we wanted a yard which we got.  Almost as soon as we moved there, a friend told me about a job at his computer company.  I had an interview with a manager and wound up with a part time job as a support person in a hardware department, helping out with databases.  Leslie was almost 3, and had her first experience in day care.

The next few years, as I became a full time worker in the computer industry, most of my salary went to day care.  But, a few months after becoming a full-time employee, I could buy company stock at a discount and start a 401k account.  The more traditional company Jim worked for did not offer either benefit. 

I worked for Stratus Computer full time from January 1984-August 1993.  Since 401ks were pretty new at the time, when people were eligible for 401ks, we had a training session.  The most important thing I learned was to diversify your 401k portfolio.  Invest in big company funds and small company funds.  Invest in domestic company funds and foreign company funds.  Invest in high tech funds and traditional funds.  In short, don't put your eggs in one basket - spread out the risk.

Remember Enron?  Here's the detailed scoop,  When you invest in a 401k, you are normally given a number of different mutual funds/stock funds to invest in.  Enron's corporate 401k pretty much limited its employees to investing in its own stock and nothing else.  When Enron collapsed, not only did its stockholders lose a lot of money but its employees who were investing in their 401k lost a lot.

I started off investing very little in stock purchase or the 401k.  Even if you think you can't afford it, always invest something in the company stock purchase program and in the 401k.   Even if you work for a great company with an ever-rising stock price, you want to have a variety of stocks in your portfolio and a variety of mutual funds in your 401k.  You may start small at first, but the money usually grows.

Within 18 months of my going to work full time, Leslie was in kindergarten.  We decided to send her to a private full-day kindergarten that was on the way to work, but it was a little cheaper than full-time day care had been.  And as my salary was increasing, we could save and invest more money.  We bought a second car, Jim also went to work at Stratus, and we moved out to the suburbs.  We didn't have enough money for a house down payment yet, but we rented a very nice duplex in the country that was closer to work.  If you ever take the train from Worcester to Boston, you've seen our duplex - in the 1990s, the Westboro train station was built right across the train tracks from the house we lived in during the mid-'80s.

We were fortunate as Stratus stock price increased during the mid-'80s.  We invested more in the company stock account, but also sold a little to buy other stocks.  I think the next stock we bought was pretty far away from a high tech stock - Ford.  Our 401k accounts also grew.  By 1987, we felt we could afford a house, and, after some searching, bought a Cape Cod with a great yard in Northboro, a small town with an excellent school system.

During the late '80s and early '90s, we saved money, paid a little extra on our house and continued working at Stratus. Paying down a mortgage is almost always an excellent investment.  It's shocking how people don't care about the importance of having equity in your investments, especially in your house any more.  We also kept our debt low.  Much as I love to travel, we didn't travel much outside of the northeastern US.  We did take a 13-years-late honeymoon to Florida, where we had an unplanned expense - we bought two years in a time share company.  We always knew we'd only keep it for two years; we mostly bought it as we were planning to spend extra time in Orlando in 1992 and liked the idea of having a condo for part of the trip rather than just a hotel room.  And this company let you rent condos in many places for a week, so we reserved a condo for a week on Cape Cod for 1991.  Normally, time shares aren't a great idea, but if you find a company that lets you test the experience for a year or two, that's much better than being tied into a long term contract.

By 1993, we felt we needed a change.  Jim sent one resume to a company he'd heard about back in Pittsburgh, they had him down for an interview.  They hired him.

We had one weekend to buy a new house.

Part 3

Improving Your Investments: How NOT to Be Dumb Money (Usually), Part 1

I've always been interested in investments and sometimes been interested in economics. I've written two blog postings about these issues in the past: 

• Economics Isn't Physics:  What Politicians Don't Get About Recovering from a Severe Recession (2009)
• Things I'm on the Fence About (2013)

I've been thinking about writing about investing for a long time.  We are reasonably comfortably retired for four reasons:

• At least one of us (usually my husband) has been gainfully employed throughout our marriage
• We always had health insurance when we needed it
  
• We always worked to pay off debt and have basically had no debt for over six years
• We started investing once we both had good jobs and diversified our investments as soon as we could

And, I also have to admit it - we've also had plain dumb luck.  Sometimes life goes way beyond your control.  While that's happened to us in some ways, it hasn't happened that much with finances.  And when finances got ugly (and they have a few times), we were able to adapt to the situation.

We got married in the late '70s just after my husband Jim graduated from college.  Lots of people started getting married when they were older in the '70s. We wanted to be together whether we had money or not.  My parents threw us a fairly simple wedding (no limos, limited flowers, nice reception, no matching tuxes or dresses).  We borrowed a car to drive our wedding gifts back to Pittsburgh as we didn't have a car of our own. Our honeymoon was two nights in Washington DC, where my brother picked up the car to drive it home. We were both unemployed the first few weeks of our marriage, but, luckily, had wedding gifts to buy groceries and pay rent.

But this was all OK.  We were together and we learned a very important lesson over those first two years of marriage - we learned how to live poor. We learned how to be adaptable. It was news to me as I'd grown up very middle class.  But it wasn't news to my husband, who'd grown up fairly poor and had been a scholarship student in college. He'd taken the bus about two hours every day from his home across Pittsburgh to get to classes.

Soon after we settled into our first apartment, I got a job as a waitress. Jim got a job as a school teacher meaning he'd continue to be unemployed for another 2 1/2 months.  I was hoping to return to college in the fall, but the money just wasn't there so I worked at various jobs (I really hated waitressing) a found a job I generally enjoyed - working as a floating sales clerk in a department store.  I landed in the book department which I enjoyed the most.  We were extremely cautious that summer as we had no health insurance.  The birth control pill pack was $10 a month in those days and that was probably the expense we were the most religious about covering.

Jim's introduction to teaching was walking the picket line his first weeks of  "work."  Luckily, the strike only lasted for two weeks.  That year, we made just a touch over the local poverty level but at least we had health insurance.  We were able to get a Sears credit card, which we needed as we moved to a better apartment but one without a refrigerator. MasterCharge turned us down.  About the only other thing we bought on credit that year was a set of Encyclopedia Britannicas which Jim got at a discount as he was a teacher.

The main surprise the first year was I needed surgery.  The excellent health insurance paid for everything, but I had to take a month off of work. Still, we were able to come up with enough money so I could return to the University of Pittsburgh the next fall.  I worked part time at the Burger Chef in the basement of the Cathedral of Learning while going to college full time. MasterCharge gave us a credit card that year so I was able to charge my college textbooks.  Jim continued teaching science.  He also made some extra money by tutoring some of his students.

And then...Jim did not get tenure at his teaching job.  I encouraged him to look for a non-teaching job - he'd been a physics major in college but was a good writer.  Relatively quickly, he got a job at a plant in Ohio.  But since it was a uranium enrichment plant, he had to get a security clearance, which meant we were without health insurance for a while.  While I'd finished my junior year, I was pretty sure we'd be in Ohio by early in the fall, so I didn't try to stay in Pittsburgh to finish my senior year.

We both worked the same full time temp job that year - reading newspapers and recording keyword searches for a legal case.  Simultaneously interesting and boring.  But we were able to save enough money to buy a car, which we knew we'd need.  It wound up taking nearly six months for him to get his security clearance, and then we were on our way to Ohio.

Since he was now making twice as much money as he did as a teacher, we found an excellent apartment - the first floor of a large old house near downtown Chillicothe, Ohio.  We suddenly had huge rooms and even separate offices.  There was a porch, yard and a detached garage!  Our bedroom had a bathroom with a shower!  Such luxuries!  I got a job for the 1980 census, helping to administer census taker tests which would be full time until September.

We felt rich.

So we decided it was time to start our family.  As I'd had ovarian cyst surgery two years before, I figured it could take a while to get pregnant.  Surprise - I was pregnant the next month.  Yeah, I guess you're near peak fertility when you're 23 and your husband is 25.

Much as we were happy about the baby, we really didn't care much for Chillicothe.  We met a few other couples around our age...but...it just felt dull.  After we had our daughter, Leslie, in the fall of 1980, we were very busy with her, but...we really didn't like where we were.  Just after Leslie's first birthday, Jim started looking for a new job.  I don't remember now how he found a job, in those pre-World Wide Web days, up in Boston, but it was exactly where we wanted to be.  By February 1982, we were living in a small apartment in Boston and we were city-dwellers again.

I haven't started talking about investments yet because the first few years of our marriage, we had virtually none.  I knew a little about stocks and bonds - my grandfather had given each grandchild 6 shares of AT&T stock.  We got something like $16 of dividends a quarter. We sold that stock before we left Pittsburgh.  I think Jim was on a pension plan for his first few jobs; not sure the term "401k" even existed yet.

But even though we didn't have investments, we understood how to live within our means.  I don't think we left Ohio with more than $500 in consumer debt and maybe $2,000 in car debt.  Our main "optional" expense were books.  We really loved to read and had probably 4,000 books (mostly paperbacks) by the time we moved to Boston.

Things were different in the 1970s and early 1980s - you could get an apartment without bringing in extra roommates if you made little money.  More jobs offered decent health insurance.  College loan pay-off was easier - college was cheaper and the special college loan interest rate was around 3%.  Financially, it is harder for most people today than it was 45 years ago.

More next time!

Part 2