Retirement. The word just doesn’t mean what it used to. In this fast moving world, having the same career throughout your life then retiring on pensions feels like a bygone era. Job security is a problem and many companies have handed you the responsibility of managing your own retirement funds in 401K’s and IRA’s. Social security isn’t likely to provide any support for those in their 30’s or younger.
The world today of social networks and personal mobile devices empowers the individual. You. You’re in control of your future more than any other generation before, but it also means you have to do the work because no one else is watching out for you.
I said this in Day 1 and Day 2 of this series. MarketHeist is meant to teach you how to do this work of taking care of your own financial future. And, in a world full of both big opportunities and uncertainties, the goal should be to financially free as early in your life as possible. In other words, have the option of retiring as early as possible. The money you make after that point just adds to the security of your livelihood and freedom to enjoy life. AT THE LATEST, by the “retirement” age of 65 or so, you want to have built up a large enough portfolio, what I called the money machine, to consistently generate the income needed for living expenses.
Wisdom #1: Compounding Insanity. Time To Start is NOW
When should you start investing for retirement? No matter what your age is, it’s never too early to start. Meaning, start now if you haven’t yet. You’ve heard the cliche “Time is Money.” Time also grows money. Retirement investing is about safety. It may be boring, but what you get to do with the money won’t be boring.
How does the miracle of compounding work? This is especially important for those that are younger that think they don’t have much to invest and therefore will wait until they have a higher salary. Wrong. Even if you’re investing just $1000 today in a bond or dividend that pays 5% per year, $1000 today is worth
$1629 in 10 years (but starting with $1000 in 10 years is still just worth $1000)
$2653 in 20 years (but starting with $1000 in 20 years is still just worth $1000)
$4322 in 30 years (but starting with $1000 in 30 years is still just worth $1000)
Wisdom #2: Compound as Much Money as Possible As Early as Possible
So, just a few bucks today is worth many many times more in the future IF you invest it safely and compound it. They key to retiring is to have enough money compounding that’ll pay for your living expenses. There’s no magic to having money invested and compounding. You just have to set aside money to do it. Here’s the plan I laid out in Day 2 of this series.
- Pick a minimum payout goal. How much income will your money machine need to pay you every month, every year, for you to live the lifestyle you want? Can’t keep changing or raising the target. You’ll never get there. The less you need to be financially free, the faster you’ll get there. Obviously. The faster you’ll win at life. The income your money machine generates from then on is on the house. You’re free to really enjoy life.
- Figure out a specific amount of money you’re going to invest every month, every year, no matter what. Pick a specific percentage of your income to invest periodically no matter what. This amount should only increase as you have more and more to reinvest.
- Pay investments and bills, then pay yourself. You’d be surprised how little your life would change. You may not even know the difference, except for the bigger and bigger money machine you have every month.
- Don’t get distracted. It’s simple. It’s easy. Do the same thing every month, like it’s on autopilot. In fact, you can have your set amount transferred from your paycheck directly to your investment account or broker. It’ll save you from you, spending it on what you want now instead of what you want the most.
Wisdom #3: Many Baskets, Many Eggs
As they say, don’t put all your eggs in one basket. However, that’s what most people do when they invest in all stocks, either by themselves or through mutual funds they own. Diversify based on what you get from your investments: growth or safety and income.
Growth can be your own business, investing in stocks, mutual funds, or even investing in managed accounts that trade stocks, options, futures, or forex for you. When you’re younger, you can take more risk by putting more money in growth opportunities. However, when you have a good streak in certain growth investments, it’s prudent to take siphon off some of the extra wealth you just received and add that to your safety investments.
Safety and income can be stocks as well, if you or your money manager uses capital-preserving strategies. Most people think of bonds or other fixed-income assets for safety and income. There are many investments that will keep the value of your investments and grow them slowly but surely.
Wisdom #4: Treat Retirement Investments Differently. They're Special.
Again, back to Day 2’s lesson. Don’t try to do other things with your retirement investment funds. If you want to start your own business, invest in high drama stocks, or trade forex, set aside other money for that. Don’t confuse the money you can afford to lose with the money you can’t.
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