2007 is finally finished. I took a look at how my 401(k) did for the year and decided to post my holdings and gains/losses. It wasn’t a bad year considering I didn’t have any idea what I was doing. I started reading The Intelligent Investor by Benjamin Graham and realized I was lucky to finish where I did.

Summary: Opening Value: Employee Contributions: Employer Contributions: Investment Gains/Losses: Reinvested Dividends: Closing Value on 12/31/07: Investment Performance:

$18,886.54 $6,308.88 $3,154.44 $1,991.51 $118.33 $30,459.70 8.99%

Holdings: Vanguard Windsor (VWNEX): American Century Growth (TWGIX): Russell 3000 Index (IWV*): MSCI EAFE Index (EFA*): ESOP Fund:

$4,527.15 $6,277.09 $7,195.88 $6,807.30 $5,652.28

*Posted ticker symbols are representative of funds intent.


Right off the bat, there are problems. Almost 19% of my holdings are with my company’s common stock fund. This does not provide any protection against fluctuations for Wall Street's valuation of my work place. It can be considered wise to, “invest in what you know”, but not to this extent. It’s dangerous and I was lucky that our company’s stock had been rising steadily for over a year. Also, since I’ve been reading Graham, I noticed I do not have any holdings in bonds. Based roughly on what I’ve read, an investor should carry no less than 25% of their total holdings in bonds (government or corporate depending on your tax situation). This can be adjusted based on one's level of effort in research and not risk. Graham tosses out the (110 – age) or (100 – age) formula for bond holdings since it is dependant on an individual's financial needs. I also have a large percentage of foreign stocks and small cap industries and not enough in dividend providing stocks.

I’m still learning and have realized I’m going to make mistakes. I’ve also learned to not try and, “beat the market”. If I finish at around 8.99% every year, I’ve done pretty well. I’m still taking a look at where I want to go with 2008. Right now, I know I’m going to decrease my company stock holdings to less than 10% and include a bond fund to take up at least 25% of my holdings. I still don’t know what to do with the other funds. Part of me wants to open a “self managed account” and ditch the funds I have. I’m not exactly fond of them. Another part wants to go directly into Graham type common stocks and another part of me wants to pick a boring index fund and go on auto-pilot. We’ll see what happens.

Everyone seems to agree that having 401(k) is a good idea. Analysts also claim that for best results you should max out your yearly contributions. Since I’ve been on this financial kick, I’ve been swallowing just about everything I read. I took a look at my current 401(k) contributions to see where I am at compared to the maximum and if I could increase my withholdings to get to the maximum. The yearly maximum contribution for 2007 is $15,500.00. I don’t know about you guys and gals, but that’s a lot of pre-tax money to me.

At the moment I’m contributing 8% of my gross pay to my company’s 401(k) plan. The company will match 50% of the first 8% I contribute. Right now, my total contributions including employer contributions are around $180.00 a week. Over the next 52 weeks, assuming my pay rate stays the same, I will contribute around $9,500.00. I need to find another $6,000.00 a year of pre-tax dollars. Assuming I only wanted to continue contributing 8% to take advantage of the matching company contributions, I would need to make about $130,000.00 a year. $130,000.00 a year generates around $200.00 a week at 8%, which after I include the 50% contribution puts me around yearly maximum. I either need a new job or go begging for a few promotions. I am a little fish in a big pond.

What if I wanted to increase my withholdings to get up to the max? I would need to increase withholdings around $120.00 a week. Ouch. Right now, if I skimmed another $120.00 a week, I’d be bouncing checks from here to other side of the globe. I’d need to cut back on something. Right now, I’m saving $250.00 a week and putting it into an ING savings account. I have been good for a few months and saved $6,000.00. I skimmed $2,000.00 from it to fund the Schwab account. I could reduce my contributions to ING and max out my 401(k). I’m not too big on this since I’m still about $3,000.00 short on my emergency reserve target. You may notice that even with an additional $3000.00, my reserve is pretty thin. It should last about 3 months. I can take a look at my spending over the next few months using my MS Money reports to see where I’m overspending. I think once I have my credit card debt down and my emergency reserve funded, I can consider raising my 401(k)contributions. I am not ready yet. This is frustrating. I feel like my paychecks are just disappearing. At least if there were a Porsche or Ferrari in the carport, I’d know where it’s all going!!

So I figured I break the rules a little and start my brokerage account now rather than later. Technically this could be considered premature since I’m still paying down high interest credit card debt. It should be paid down by mid January so I think it should be ok. I also don’t have a complete six month emergency reserve yet. I took $2000.00 from my “reserve fund” and have it sitting in cash in a Charles Schwab One brokerage account. I keep reading everywhere about the magic of compound interest and that, “you have to start early”, or “you can’t start early enough”, so I just went and did it.

There a multitude of discount brokers out there, so someone may be asking why I went with Schwab and not Zecco, Fidelity, ShareBuilder, or E-Trade etc. I went primarily on word of mouth; their fees, minimum deposits, and references looked good too. My best friend had a brokerage account with Schwab and always had positive things to say. Whenever he got into trouble, he could always call and talk to a human being. He closed the account a few years ago to use the funds to make a major purchase. If you don’t open a checking account with Schwab, the minimum deposit to open a One account is $1000.00. Trade fees are $12.95 for the first 1000 shares and drop to $9.95 if you hold a huge balance or make more than 120 trades a year. I don’t plan on day trading so $12.95 a pop seems reasonable. I’m considering closing my Washington Mutual checking account and going all Schwab. Their checking account offers all the bells and whistles of standard big bank checking accounts plus reimbursements for other bank’s ATM fees and 4% interest on balances. No minimums. Not bad. The downside is you have to mail deposits in or have them transferred from another checking account. They don’t have ATM machines on every corner like BofA or Wamu.

There were some pains in opening the account on-line. Something went wrong and I didn’t correctly create a login ID. I called up the customer service department, was on hold for less than a minute, and a human being walked me through the account setup process. I then botched up the MoneyLink setup which links my Schwab account to my ING checking account. I happened to be near a Schwab branch, called them up, made an appointment for 30 minutes later, walked in and they explained what the problem was. I setup MoneyLink then called customer service to verify my ING account really was mine, then transferred my money. It took a day and a half to transfer the funds from ING to Schwab. Schwab has a three day hold on money transferred to them through MoneyLink. I’m used to these types of holds since ING has a similar two day hold.

I’m happy so far since I’ve been in trouble twice already and there has been a person to talk too and hold my hand. The 800 number customer service and the branch representatives were very nice and helpful. I got my welcome packet in the mail yesterday and got a call from a new accounts representative to answer any more questions I have on getting started. I have a pretty good idea of where I’m going to make my first investment allocations. I’ll make the trade January 1, 2008 and post my holdings. I still have to setup recurring deposits. I’m diverting some money I was using to build my emergency reserve to fund the brokerage account. I’ll try it for a few months and reevaluate to see if I’m spreading myself too thin.

I originally wanted to go with ShareBuilder since ING just acquired them. I thought it might be nice to use the products of the bank I’m already with. For some reason ShareBuilder didn’t rub me the right way. I liked their concept and still do, but the idea of trading only on a specific day for their advertised rate seemed odd. If you’re dollar cost averaging it should not matter though. Also, if you’re not careful with ShareBuilder their fees could wind up being a significant portion of your investment. There are ways to mitigate this. Zecco scares me since I haven’t read a positive review yet and some of the other brokers had higher minimums or more expensive trade fees.