Hello everyone! It's mid week and my studying has droned to a halt. I needed to clear my brain so I decided to share my knowledge on investing tactics that actually work. It is strange that I graduated with a degree in accounting but knew so little about real life application. The American school system is based largely on theory and to apply those theories you've got to get up off the couch and go throw some money around. Luckily, the internet and a few cheap books have taught me how to attract more money that what I threw into the system.
There are many ways to invest. To keep this topic in scope I will only talk about long term investing, the type that is needed for a successful retirement. Fortunately when you have 20 or 30 years to plan and invest your retirement it becomes far less challenging to create a profit, and a substantial one at that. I am talking Millions. The key to effective retirement is simple: Begin your retirement savings NOW, plan sooner rather than later, and avoid gambling your retirement on risky stocks and market timings.
1. I don't care how old you are, and you have probably heard this often, the earlier you start the better. Based on the last 80 years of data and achievable market returns, every dollar you put away today will be worth $35 - $40 after 40 years. However, for every 10 years you wait, you can divide that number by 3!. So would you rather have a million at 65? or 3 million? These are actual estimates based on the last 80 years of the stock market performance. Save NOW!!
2. Planning for the retirement should really be concurrent with savings but most people find it difficult if not impossible to save for retirement at a young age and thus saving really needs to take precedent. What is the point of planning a retirement but not having the cash to implement it? Even if you can only scrounge 500 a year, do so, because that $500 will contribute just as much to your eventual retirement as the $1500 you can save 10 years from now.
3. The most common tactics investors use to make money in the stock market DO NOT WORK. This study shows that heavily managed investing funds and companies make, on average, 5% less than average market returns over a 5 to 20 year period. Although I myself have made large returns trading on a single cash cow (Tesla), this was a calculated gamble and would never go into my retirement portfolio. (Companies like Tesla only come about once in history, I was just able to recognize it early on for what it was)
Once you realize the importance of retirement savings, followed by planning, I invite you to discuss with me, or a professional broker, the proven methods of a return on investment. By saving money annually and placing it into a correctly diversified portfolio, it is very reasonable to expect at least an 10% gain on an annual basis. Investing annually will allow you to defeat the uncertainties of market timing, 2008 was a great time to invest!!!! Late 2007 was not. By investing $500 on Dec 31st 2007, and another $500 on Dec 31st 2008 you would now have $1435. This is because the good year evened out the bad year, thus eliminating the hazard of market volatility. Expanding this method to a period of 20 or more years your return would be 11.2% based on the last 80 years of the American stock movements. Based on these numbers, $500 invested annually for 40 years would grow to 386,000 after 40 years. If you start 5 years later, this would only grow to 219,000.
Final words: How do you invest? Open an account at fidelity.com or at vanguard. I use fidelity and it is super super easy to use with a user portal that puts my college portal to shame. This is where you will access stocks and bonds as well as unlimited resources and advice from real humans.
And I didn't even get a chance to mention the tax deductions you get on retirement savings!!!!
Summary: Save now, buy this book: http://www.amazon.com/Truth-About-Money-4th/dp/0062006487
or read it here -especially the chapter on dollar cost averaging. Talk to me, choose your retirement strategy and stick to it the next 40 years.
