Playing the Market

I’ve been employed with Lifetime Products for over a year now, and as such now qualify for their 401(k) plan (which is quite generous).

While I like 401(k)’s on the surface, I’m not that thrilled with the nuts and bolts of how they work. Basically, for those who don’t know, your employer partners with a “Custodian” company (usually a life insurance company, for some reason) and you (the employee) get to allocate a certain amount of money to go from your paycheck into an account with your name on it.

There are three advantages to doing this:

1. The money is automatically withheld, you don’t have to manually set it aside
2. The money is withheld pre-tax, which means for someone in my tax bracket, if I’d have pulled the money out myself (after taxes), $1.00 would have been reduced to about $0.70 by Uncle Sam
3. Often times the employer will match your contribution (up to a certain point). Hey, can’t say no to free money, right?

And now for the disadvantages:

1. You’re locked in to pre-established investments such as money-market accounts and mutual funds; you can’t invest in specific companies (except possibly your own, as in the Enron debacle)
2. You’re limited in the amount of moving that you can do in your portfolio (only investing, not trading of stocks)
3. It’s difficult for you to invest your own (non-salary) money into the account
4. Once you’re invested, you’re in. Removing money carries with it the risk of
   1. Losing your employer’s match (you have to wait until the matched money is “vested”
   2. Early withdrawal penalties and fees

So, what to do? Well, I’m not one to really TELL you what to do, so here’s what I’ve done. (By the way, this should not be considered a recommendation of what you or anyone else should do, nor of any particular stocks, strategies, yadda yadda… in short, this is here for my own information and to stir some level of contemplation on your part. What you decide to do with your money is your business, not mine.)

By the end of the year I hope to put in 4% of my wage/year (that’s the maximum amount that my employer will match). Presently I’m only investing 2%. Why am I upping this to 4% (and not higher)? Simple math; If I make $10,000/year and invest 4%, that’s $400/year. If my employer matches my first 4% at 50%, that means my employer is graciously handing me an additional $200/year. You just can’t beat that! Obviously these numbers are for illustrative purposes only.

But why no more than 4%? I feel that I can make an even higher return by trading in the stock market (not investing, trading; yes, there is a difference).

So, that said, here are some stocks that I’m presently watching. I’m including them here mostly for my own reference (so I can see what stocks I’ve noted to look at in the future from anywhere that I have internet access). I’m not listing them as a recommendation to buy, sell, short, or even consider, just for my own convenience. If you gain anything from this post, I hope it to be the consideration of investing in an employer sponsored/matched 401(k) and becoming educated enough to trade in the market (not invest, but trade). But that’s fodder for another post.