Fool.com: "Don't Do What I Did" Fribble (Fribble) December 22, 1998

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Tuesday, December 22, 1998

"Don't Do What I Did" Fribble

It seems to me that there are many kinds of Fribbles. There are the "investing is like..." Fribbles. ("Investing is like tiddly winks." "Investing is like a baloney sandwich.") There are the "I was (or I know someone who was) Foolish before I knew about Fooldom" Fribbles. This is a "don't do what I did" Fribble.

Many years ago, it seems to me, the investment world was a lot Wiser than it is now. My memory is that funds many years ago were a lot more likely to be a mix of stocks, bonds, treasury bills, and who knows what else. It also seems to me that the funds were a lot less open about what their makeup was than they are now. My first 403(b) had only one fund in it to choose. (For those of you who do not know what a 403(b) is, don't worry. No one knows what it is. About the best I can do is tell you that it is a 401(k) with some minor distinctions.) The fund had a name -- a mixture of letters and numbers -- that meant nothing to anyone I knew. The administrator of the fund was not very open about what was in the fund, as I recall. The fund's average annual return was 3%.

Then, when the stock market started to return a great deal more than 3% (and, I suspect, clients started bailing out of the fund), the fund changed slightly. The fund became slightly variable, presumably so it could go up and down with the stock market. As I recall, the administrator of the fund was not very clear about what changed in the investment vehicles in the fund, but the fund's return started tracking the market... sort of. The fund's return varied from about 3% when the stock market was doing poorly to about 6% when the market was doing well.

Although I was young, I was somewhat Foolish. I contributed the maximum amount I could to the retirement plan. However, I was also partially foolish, and at least partially influenced by the Wise administrators of the fund, in that I left the money in the fund after I left that job. In fact, my recollection is that I was told that I couldn't remove the money from that fund. Even if I am wrong in that memory or interpretation of what I was told, I think my impression of the Wisdom that was being imparted to me is correct: "You don't know what you are doing. We know the best way to handle this. Just leave your money here. Leaving it here is the most expedient way to handle your money."

Years later, when I became a little more Foolish, I started to question the impression I had been given, and sure enough, I found I could put the money into a more lucrative vehicle by rolling it over into an IRA. However, 15 years had passed. I decided to calculate how much money I would have had had I originally put the money into, say, an S&P 500 Index fund. It took my breath away. I would have had about five times the money I actually had in the fund.

At every step in the process of converting the funds in my 403(b) to an IRA, the Wise (and somewhat bureaucratic) administrators I had to deal with to make the conversion said, "You can't do that." However, as we talked about it further, it became clear that I could "do that," and after about 6 months (way longer than necessary), the conversion was complete. The old fund administrator sent me a letter saying (I paraphrase): "Do you realize that the fund is now paying 6.09%?" (I think "you idiot" was implied.) This at a time when the S&P 500 was returning 40%.

If you haven't learned it here on the Fool, take it from a battle weary veteran: Time is incredibly powerful when it comes to money. The advice you are being given at this site can mean a whole lot more money in your pocket in a decade or two. Be as careful as you can, but don't put off questioning the Wisdom you get from the many Wise administrators of the investment world.

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