2009 Financial Lessons Learned

I stood and watched the dark sky rise
With glaring sunlight in my eyes
I thought of all the times gone by
And laughed aloud at the crimson sky
--Modern English

Reflecting on key personal finance lessons learned over the past year.

New house. On the surface, it seemed like a risky time to move. Slow housing market, plus I wanted to upsize to a larger house (and a bigger mortgage). But, despite a more absorbing process than anticipated, the move was well worth it. I sought about $100K worth of upgrades including brick exterior, nice garage, sun room, nice wood, eat in kitchen, two baths, working fireplace--a wish list that was nearly completely satisfied. With about $30K in additional upgrades, my new house is a joy to live in each day.

Mortgage phobia. Although my mortgage was on good terms (15 yr fixed @ 4 5/8%), I learned that I just don't want to lug debt anymore. As such, I began paying down my mortgage at a fast clip. At year end, I'd retired nearly half the principal and about $50K in interest expense. Primary goal in 2010 is to finish this thing off.

Buying in risky environments. I'm commonly too early with most investment decisions. In early 2008 I began buying pharma stocks like Merck (MRK) and Pfizer (PFE) thinking they were attractively valued and perhaps immune to a general market decline. Big mistake. They went down like everything else. The thing to do would have been to buy them when there was blood on the Street, as it was last spring. Easier said than done to be sure, but in high risk market environments, only buy stocks when they are getting slaughtered and value is a no brainer.

Dividend cushion. Stocks paying a decent yield offer a margin of safety. When I bought MRK and PFE, they were yielding 5% or more. This helped soften the blow during their declines. When these stocks rallied, the cash obtained from dividend payouts pushed these trades above water at prices nearly 10% below my initial purchase price. Although 'getting back to even' should not be a primary goal when investments go bad, it was a good feeling to unload to unload positions at a decent profit toward year end.

IRA withdrawals. I dipped into my rollover IRA multiple times during the year, first to fund some of my mortgage downpayment and home projects, then to crush down my mortgage. Despite pushing up my marginal tax rate and the 10% early withdrawal penalty, this was worth it. Thus far I've saved over $50K in mortgage interest expense, plus I've increased my liquidity to live in the present. Cutting back on retirement account contributions has been one of the best decisions I've made in the past couple of years. Early IRA withdrawals to improve my current situation ranks up there as well.

positions in MRK, PFE