Finance can be a game of risk and reward. Get a little too risky and I can find myself making bad decisions that cost me money. But the same goes for being too conservative. Not only can playing it safe not earn me the rewards that taking on some risk occasionally can, but it can also burn me by costing me money in other ways.
The following are a few examples of times when being just a little too financially conservative really hurt me.
After graduating college, I landed a role with a company that offered a stock purchase plan. I paid into this plan for over a year, buying shares at a heavily discounted rate and accumulating several hundred shares in total.
Eventually, the company ended the plan, but I retained my shares. However, I wasn't content to let them sit. Though I didn't need the money, youthful impatience and the desire to recognize a quick profit led me to sell my shares, landing about a $1,400 profit in the process. Unfortunately for me, several years later the company was bought out, the stock selling for a price that would have garnered me almost $9,000 more than that at which I previously sold.
401(k) and IRA Fund Selections
I'm currently pretty happy with the income fund that I have the whole of my IRA in. This IRA was rolled over from a 401(k) plan that came from that previous employer I mentioned. With that previous employer, I split my contributions 35/35/30 between a large cap stock growth fund, an S&P index fund, and a bond fund.
Looking back on it now, since I didn't need the money and wouldn't be able to touch it penalty free for decades anyway, I probably should have put much more toward the growth fund. While there was more risk involved, I also had more time to make up any losses; plus, I had employer contributions going into the fund as well. Now as a self-employed individual though, I don't have such luxuries due to no employer-sponsored plan and less discretionary income.
Buying a Home
During the search for our first home (back in 2007), we wanted a property with a lower price as well as lower property tax rate. Therefore, this restricted us to certain areas in the Chicagoland area. This seemed like a good way to get into the real estate market without overextending ourselves and putting too much money toward property taxes over the long-term.
Unfortunately, soon thereafter, the housing market completely tanked. Because we had purchased in an area without the amenities of certain higher income, higher property tax areas, our location took a heavier hit when the market collapsed. And in turn, it didn't carry the rebound that certain other areas did when the housing market eventually began to recover. Therefore, we sold our home and ended up buying in a better area anyway.
I know now that paying a little bit more in the near term in an effort to recognize a better quality living location can pay off over the long term through greater price stability, increased amenities, and better price appreciation -- or depreciation depending upon the situation.
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