When I first graduated from college and entered into the work force, all I knew about investing in the market was contribute as much as you can while you are young so you don’t get used to living entirely on your salary. But I was new money, my first real paycheck, and I had school expenses to pay back, and new car, and needed some fun money. Therefore, I’ve always contributed up to at least the 401k match that my company provided, but probably could have been more diligent to contribute more while I was young.

When it came to picking what to invest in within the 401k plan, I typically randomly selected among the different investment options available in my company plan with no real guidance. My number one criteria back then was looking at the fees and rate of return of each fund, but early on I didn’t know much about asset allocation.

So I decided to pull out my first 401k statement, going back to 2002, and see just how bad my investments options were for a young, uneducated engineer. The first company I worked for had their 401k plan through Principal, as does my current company, so it makes for some easy comparisons even though the investment options have changed. As you can see from the below chart, I had my money going all over the place.

Did I make money? Sure, everyone was back in 2002, but I didn’t have a lot invested at the time, and had no idea of the potential in the future of compounded growth.

Fast forward to 2005, when I switched to my current job, and had to rollover my previous 401k into our new plan. I was even more confused. I was invested in balanced portfolios that automatically adjust the investments over time and other specific vehicle funds, but I still had no real direction.

Around this same time I had a fellow, older engineer make the jump over to the financial world, so I decided to spend some time listening to him about my allocation. He of course was trying to drum up some business, but I was diligent about not over extending myself, and declined his services; however, he taught me a free lesson and helped guide me towards my current allocation. One item I remember discussing with him about was the possible duplicity of funds that I held. Since I owned balanced funds and individual funds, I probably owned the same stocks, bonds, etc. across multiple accounts. This didn’t even include my outside IRA and other investments. So I basically wiped the slate clean on my 401k and started from scratch.

I remember sitting down and developing a balanced approach across all spectrums of the market. Therefore, my model asset allocation consisted of: 10% Fixed Income, 40% Large Company U.S. Equity, 30% Small/Mid U.S. Equity, and 20% International. Obviously as I get older, I may start to gear my funds more towards safer fixed income vehicles, but for now while we are young, I’ll maintain my low percentage allocation.

My allocation today, I feel, is way more diverse, and ultimately rode out the rough time the past couple of years, more than my previous allocation may have done. The thing that surprises me the most though is how my allocation has pretty much stayed balanced over all these years. Every year when we meet with our Principle advisors, and during my constant research, I get told about rebalancing. The idea is to rebalance the portfolio to make sure you are still at your model asset allocation. I re-evaluate my account all the time to see if I should rebalance; however, the numbers are usually close enough to my model that I don’t have a need to rebalance.

Should the numbers ever become grossly out of align, then I’ll need to evaluate rebalancing to match my model allocation.

We happen to come across someone we knew that was having their home foreclosed and the house was scheduled for Sheriff Sale. The house had all the “necessities” we wanted a new home to contain (i.e. newer home, a fireplace, swimming pool, 4 bedrooms, finished basement, etc.). Plus we knew the house was well taken care of and would not be vandalized prior to the current owner leaving.

In the County where the home resided, the home was appraised by a drive-by appraisal for $165,000, and the rule is the opening bid was 2/3 of the appraisal, or $110,000. Considering the home was in an area where homes sold for $200,000+, and that we knew the person and the condition of the home, there was potential to build some decent equity in the home if we were to buy it at discount. However, we were not educated in buying a house through a Sheriff Sale, so we began to do our research.

We started by going online to the Recorder’s Office and pulling up all the public information on the property including the address, square footage, purchase/transfer history, tax payments, etc. Once we were familiar with the property, we started searching for comparables in the area through sites like Zillow.com. After review of all the information, we made a determination that it was something we were interested in, so we proceeded to the next step.

We scheduled a home visit with the property owner (we had an advantage of knowing them) to get familiar with the house and perform a self inspection of the property. We went through each room inspecting the floors, doors, windows, walls, electronics, plumbing, heating and air conditioning, etc. to determine their condition and what respective improvements would need to be performed. In most cases, an inspection of the home prior to the Sheriff sale is not an option because the bank doesn’t own the home and you are purchasing the home as-is.

After inspecting the house, we were determined to win the house at the Sheriff sale and continued to conduct research on the process. We called our insurance agent to determine what the new premium would be on the house. Since we own an existing home and wanted to consider renting it out if we purchased the new home, we also discussed this with the insurance agent since our premium would be adjusted as a landlord. We also listed our home for rent on Craigslist.org.

The next step was to meet with our bank to line up financing. In the County we were looking to purchase, the buyer is responsible for a 10% down payment upon winning the bid. The buyer is then responsible for the remaining balance within 30 days of confirmation of the sale. In addition, the buyer is responsible for 10% interest on the full bid amount if the remaining balance isn’t paid within 8 days of confirmation of the bid. If the remaining balance isn’t paid within 30 days, you forfeit your 10% deposit and could be found in contempt of court. At this point, many flags were going up and we determined this may not be such a great deal afterwards.

So we met with our banker and he pointed out the following items we needed to be aware of from his experience. If we are to win the bid at the Sheriff sale, we would be responsible for any back taxes that have not been paid on the property. In this particular case, the owner had not paid one installment of the taxes; therefore, we would need to come up with roughly $2300 additional dollars at purchase.

Since water and sewer service in our area is normally billed over a three month period, we would be responsible for any unpaid balances on both the water and sewer. Luckily, this would not be more than a couple $100. All other utility services are in the owner’s name, and we would not be responsible for them.

Going back to our existing home that we were looking to rent, our bank informed us that in order to write a new loan on the new home, they would need to see both a lease and deposit on the new home. This could easily be fabricated to satisfy the conditions of the loan.

Before a bank will underwrite a loan on the house, they will require an appraisal of the inside of the house with all the utilities services on. Therefore, if the house was vacant and we were to win the bid, we would need to have all service connections up and running within 2-3 days of the sale. Herein is a big problem because after the Sheriff sale, we still would not own the property until all of the funding went through and it was approved by the Judge. In our case, if the current owner was still in the house, which they likely would be post sale, we could perform the inspection with the utilities in their name.

The new home loan would require an inspection of the home. In most cases, the County will not allow you to make any improvements on the house while the Sheriff sale is being finalized. Therefore, if the furnace is bad, there is black mold in the house, etc., and the bank will not give you a loan with the deficiencies and the County will not allow you to make the improvements because you do not own the home, you are out of luck on securing a loan.

Lastly, going back to the appraisal, the County where we were looking to purchase will not allow a full appraisal of the property; the appraisal must be done from the outside because again we would not own the home until after the funding has been provided. Therein lays the biggest issue. A bank will not provide a loan on an outside appraisal.

Therefore, after all of the above issues, we determined that a Sheriff sale was not the best option for us. In actuality, the County makes it next to impossible for anyone to buy the home except the bank or those with cash to buy the property.