OT: The value of time
Papi_Chulo
Miami, FL (or the nearest big-booty club)
Before wealth manager and author David Bach made his first million, he was a brand new financial advisor in his early twenties, he tells CNBC Make It: “We had someone come and talk to our training class, and as he walked out the door, he handed us this chart.”
Ultimately, the chart “changed my life,” Bach says.
The chart shows two different scenarios:
1. You start investing at 19 and contribute $2,000 to your account every year until you reach 27. From 27 to 65, you contribute $0.
2. From 19 to 26, you don’t invest anything. You start investing at 27 and contribute $2,000 to your account every year until you turn 65.
In the first scenario, you’re only saving and investing for eight years; in the second, you’re saving and investing for 39 years. Still, the person who starts at age 19 would end up with more money in their portfolio in the long run.
Assuming a 10% rate of return, the first person would have $1.02 million by 65, while the second person would have $805,185, a difference of more than $200,000.
As the chart shows, the sooner you can start putting your money to work, the more you’ll benefit from compound interest and the less you’ll have to save to reach your retirement goals.
In terms of where to set aside your dollars, “You have to have this money invested for growth,” Bach says. “You cannot put this money in a money market account or a CD, where it grows at 1% or 2%. You’ll never build wealth.” Instead, Bach recommends putting your money to work in a tax-advantaged retirement account, such as a 401(k), Roth IRA or traditional IRA, where it will grow over time.
Retirement-specific accounts offer tax benefits, but there are other ways to invest your money: You can look into low-cost index funds, which Warren Buffett recommends, and online investment platforms, such as Ellevest or Betterment, known as robo-advisors.
No matter how you choose to invest, the most important step is to open at least one account and start contributing to it consistently.
“Start investing today,” says Bach. “Because the miracle of compound interest starts working the day you put it in place — but the key to compound interest is that it takes decades. It doesn’t get done in days. When you try to get rich quickly, you stay poor forever. This is about building wealth for your lifetime.”
https://www.cnbc.com/2019/07/08/self-mad…
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Kids college fund LOL
Money grows exponentially and time is in the exponent.
I definitely am of the “don’t trust the government” mindset tho so I don’t think I wanna use a 401k/IRA
https://nomadcapitalist.com/2013/05/02/w…
If I had an employer, then sure I’d go for it anyways cause hey 401k matching incentives. But I don’t, so I don’t really have a clue how I’m going to start just yet.
"... In the first scenario, you’re only saving and investing for eight years; in the second, you’re saving and investing for 39 years. Still, the person who starts at age 19 would end up with more money in their portfolio in the long run ..."
I also like the line:
"... When you try to get rich quickly, you stay poor forever ..."
https://coinmarketcap.com/
If I didn't have to pay into SS and my employer paid me their share that would go to SS, I'd be a multi millionaire now. One can go to the SSA and get all the payment info. Of course, this assumes that I invested wisely, which it seems I did, but what a big difference it would have made.
I definitely am of the “don’t trust the government” mindset tho so I don’t think I wanna use a 401k/IRA
This is backwards-ass thinking that results in people having to work as Wal-Mart greeters until they're 90. Do you think the government is going to seize your 401k or Roth IRA? WTF?
What Papi posted is 100 percent spot on. The earlier you start, the better, because time is everything. And since you won't need the money for a while (age 59 1/2 is when withdrawals can begin from a 401k or Roth without a 10 percent penalty), you need to invest aggressively in stocks, at least 80-20 ratio stocks/bonds. That's how money grows, not by keeping it in a bank savings or checking account.
Problem is, during the inevitable market downturns, people panic and sell, instead of realizing those are actually excellent buying opportunities.
Under the 10% return figure, one would double their money every 7.2 years, while 8% return would double your money every 9 years.
Still, point is well taken, even with 8% number the 19 yo early investor might still come out ahead, or at worst very nearly match the late starter.
That is NOT what made me rich.
For quite a while I was married to a woman (Mrs. Hornibastard #2) who thought the purpose of having all that money was to spend it on fancy homes, home furnishings, expensive new cars that she switched out every year, Caribbean cruises, fancy clothes and eating out at least 6 nights a week.
Once Mrs. Hornibastard was in the rear view mirror my simple tastes meant that most of my earnings were available for investment. I was startled when I realized how fast my savings + dividends and interest were growing.
I finally learned that most rich people didn't get rich from earning a lot from their jobs. They got rich from earning a lot on their investments (which have a fabulous way of earning you more money 24/7, 365 days a year)!
Never read into the weeds and minor details of investing to be successful. Behavior is the single most important factor. Start early and often, just like the Democrats say when voting, and ignore the market volatility to tempt you unchanging your investments. By the time you’re of age you’ll be fine.
The question for many is what they should do with what they already have. One guideline I read by a financial pundit was that the percentage of your portfolio that should be in stocks is 115 minus your age.
So, a 25 yo portfolio should be 90% stocks, a 40 yo 75% stocks, a 65 yo 50% stocks. The oldest tuscl member I've corresponded with is 82, so he should be 33% invested in stocks. The missing link in this is how old pundit assumes people are going to live. I'm guessing he picked 95. This guideline is practically useless for people at either age extreme, but probably useful for the vast majority in the middle range.
I’m a spender so I just spend money on things that could help me in the future. I learned to make my faults work for me
Those able to live comfortably off SS, pensions, part-time jobs, etc. and not tap into their 401k and IRAs are in great shape, and will have even more time for that money to grow for their children/grandchildren.
As for Social Security, who knows what all will happen with that, I wrote a fairly extensive article about it recently that I will not share here, but lets apply that 5% draw down math I used above. For 2019 the maximum benefit from SS is roughly 2,800 a month or 33,600 per year. 5% of 672,000 is 33,600, so essentially you are living off a 672,000 nest egg from Social Security.
So in conclusion, if you capped out your social security each year and saved 1 million dollars and retired at 65, you could live on 83,600 before taxes. My guess is that most of us will need more than 1 million saved.
SJG
if things turn sideways you can lose your income and your retirement.
you can start in the stock market with a hundred bucks a month into an index fund that has a 100 year average of 10.8%, you cannot open a new venture for 100 dollars a month
So there are some obstacles to overcome
I have to disagree. Of course, it all depends on other expenses (mortgage, kids' student loans, medical bills, etc.) and your lifestyle, but if your house is paid off and you don't have expensive hobbies (boat, collecting classic cars, etc.), seems to me you could live comfortably off about $50,000 or less.
If you have $400,000 in retirement accounts and they gain about 8 percent annually, that's $32,000 in income. SS will get you around $20,000.
Ideally, you if can avoid tapping into the principal of your retirement funds and just live off the annual gains, it would be great (for your heirs), I doubt most are in position to do this, however.
If a person decides to start investing at age 19, he might be lucky and begin his investing career at the bottom of the market, e.g. 2002 or 2009. But, he also might be unlucky, and begin his investing at the top of the market, e.g. 2000 or 2008.
It has been shown that the performance of your portfolio during the first few years of your investing career has a significant impact on its balance in later life.
Moral of this lesson is that it actually CAN be smarter to simply SAVE and wait to invest if you are convinced that you are at a market top. How can you tell? Use the indicators that are available. Leading Economic Indicators, CAPE ratio / PE ratio, corporate tax receipts chart, unemployment level, etc.
Living off the interest only is what got people in trouble now. Interest rates now are historically low but you would be lucky to get 4%, yielding you 16,000 in your example plus 20,000 in SS gives you 36,000 before taxes.
Now if that works for you and you are 60 years old, how much will you need at 80 years old? Inflation will come close to doubling prices over your retirement even at modest levels. Doubling prices cuts your purchasing power in half.
This is the reason that CFP board of standards uses a 4-5% drawdown. Assuming you have a mix of securities (Stocks and Bonds) your account should average 8%.... the draw of 5% gives you a cushion to build for inflation and the certain bad years
I had a friend that invested in lots and houses. Lots of vodka and whore houses. lol He was very happy!