Fribble Wednesday, December 29, 1999

That Time of Year...

By John Fuchs (JFuchs@gesonline.com)

Yep, it's 401(k) reinvestment season at our company and our financial advisor came into our office to give his speech about investing. He talked about the normal Wise things; diversifying your portfolio, the MorningStar ratings, and risk tolerance. Although I don't really know what stars have to do with investing, his advice was pretty plain. As a Fool, I started writing down my questions for the last, "Are there any questions before I take the rest of the day off?"

Why is Charles Schwab charging us 12b-1 fees on top of management fees? How many of your funds beat the S&P 500 average over the last five years (none, thank you Yahoo.com)? Why do we have a financial advisor for a 401k plan and how are you getting paid? What is your e-mail address?

Luckily we have an S&P 500 index fund, which I will take Fool advantage of, but he was pretty defensive in his answers. Standing my ground, I got the answers I wanted. When I got up to leave the meeting, I found myself surrounded by hungry-for- knowledge investors.

We decided to start an after-hours Investing 101 club and they wanted me to teach the class (hopefully they will be more than able to teach themselves). So, I started up the Fool.Com press and added my own opening thoughts:

Investing 101

Congratulations! You may have already won $200,000 in cold cash! You probably heard this before and think the only way for you to get your hands around this kind of cash is to play the lottery.

WRONG! Playing the lottery is actually the worst thing you could do. By taking this approach, you would actually lose 50% on every dollar you spend (this is unfortunately encouraged by our government -- ouch!).

There is a better way. Write yourself an I.O.U. for $200,000, seal it in an envelope, and write, "Do not open until 2030" on it (assuming today is 1/1/2000). Now, instead of giving $5 a week to the State Lottery fine, call Vanguard (1-800-871-3879) and open up an S&P 500 index fund. This approach would return nearly $200,000 in thirty years. Really feeling lucky? Play the Vanguard Lottery each day for $1 and you pocket nearly $300,000. Since gambling and smoking go hand in hand, quit both and "win" well over ONE MILLION DOLLARS! (Remember that actual figures may vary and batteries are not included.)

"Okay," you're probably thinking, "but John, the lottery is fun, exciting, and only costs a dollar!" So, visit WWW.LuckySurf.Com and you can play an actual lottery for free. Now with that out of the way, it's important for you to realize that the smallest of steps can yield the biggest returns.

The decisions you make today you will have to live with tomorrow. If you have credit card debt, you are borrowing from your future to pay for the present. It's a lifestyle change you will need to learn to commit to and set the stage for a better way of life. Some people call this budgeting, but I'd rather think of it as a way to get the most out of life.

Wouldn't you like to take a year off from work? Take a year's income and go on a world cruise for a month? Donate a year's time or income to your favorite charity or cause? This is something that most paycheck-to-paycheck people cannot even think of, but common sense planning today can make this kind of thinking possible tomorrow.

It does and will get easier if you start managing your money now. Investing in a 401(k) is easy and relatively painless, but it really skips over the steps of how to save or invest in daily life. What do you do with your 401(k) when you leave your job or retire? Learning how to save can teach you how to invest in your 401(k), career, stocks, or life. You probably heard the saying: "Give a man a fish, he eats for a day. Teach a man how to fish, he can eat for life."