PART TWO: INVESTING
Here’s a great riddle.
When is the best time to plant a tree?
Twenty years ago.
When is the second-best time to plant a tree?
TODAY!
DOING TODAY FOR TOMORROW
When is the best time to plant a tree? Twenty years ago. When is the second-best time to plant a tree? TODAY!!!! It takes time to grow a tree with which you can use to shade you, feed, or even shelter you. The same is true with a retirement plan. You can’t wait until you are 63 to start planning for retirement. It needs to start today. There are a lot of vehicles that can take you to retirement: There are a lot that won’t help a lot.
The kinds of investments that won’t help much for retirement
Sticking money under your mattress (0% interest)
A Brick and Mortar Bank (physical) (0.20% interest)
An Onlne Savings Account (0.50% interest - has been as high as 5.00%.
Check out Wealthfront Online Savings for current rates on a great online savings account
The kinds of investments that can help a ton
Mutual funds (Roth IRA) (averages 8 to 10% interest over your working life)
Short-term investment Mutual Funds (must keep money in there for at least a year)
Long-term retirement Roth IRAs are a great option. Can’t withdraw money until you are 59 1/2.
401k Investment plans with a company(averages 8.00% interest over your working life)
Pensions (from a company)
Real estate
Stock Trading
RETIREMENT GOALS
You may not want to think about retirement today, but you must. You need to have a goal for when you retire. That goal will be what you live off of when you get old and want to visit grandkids, take care of your own health needs, or invest in kingdom endeavors. Let’s call that goal our Golden Goose. We want the Golden Goose to be as large as we possibly can get her so that she can lay as many Golden Eggs as possible. You will live off of the Golden Eggs NOT the Golden Goose. You don’t want to kill the Golden Goose because she won’t be able to live on the eggs. When you die, then your Golden Goose can be used from your estate to make a huge kingdom impact or take care of family or whatever else you would want to do after you die.
My goal is to have at least a 1 million dollar Golden Goose by the time I retire at 67.
I started late (37) saving for retirement (growing my Goose). If I can get my Golden Goose to grow to $1 million, then I can live off of a 4% annual income for the rest of my life (Golden Eggs). When I die, the 1 million dollar Golden Goose can be killed (cashed in), and my estate can help other family members, Lincoln Christian University, or help with a mission organization.
1 million dollars x 4% per year = 40,000 of income.
$3,333,34 monthly income
Add that to my social security, Jennifer and I will have over 6,000 a month to live on
Our Golden Goose is still alive.
You may not have social security like we will.
So, you need to save for more than a million dollar Golden Goose. I would make it a goal to have at least a 2 million dollar Goose or 2.5 million Goose. You have to account for inflation (3% a year) that will eat into your Goose.
2 million x 4% = $80,000 (6,666.34/month in 2018 dollars)
2.5 million x 4% = $100,000 (8,333.34/month in 2018 dollars)
I currently HAVE to invest $12,000 a year to catch up. I am trying to grow my Golden Goose as fast as I can. My Goose is so much smaller that she should be.
If I would have started earlier, in my 20s, I would have only needed to average about $2500 a year.
Planting a tree today is much better than planting a tree next year. You need time to grow a tree. You need time to grow a Golden Goose.
Let’s experiment a bit so you can see what I’m saying.
CALCULATING RETIREMENT
Play with this retirement calculator - Edward Jones Investment Calculator (Here is another investment calculator from Investor.gov)
Type in your age now.
Add your retirement age (67)
Type in $300 ($250 that Roth IRA of mutual funds that you started. The lowest you can enter is $300)
Type in 8% annual return. That is a conservative average. Some years will be up and some down. But over the long term, you can expect an 8-12% annual return. Be conservative.
Hit calculate. By doing nothing, but a whole lot more than keeping your money in s 0.20% savings account at a brick-and-mortar local bank, you can see how the power of compound interest works.
Now just add $52 a year ($1 a week) on the annual max/min contribution. What do you get?
Now say $10 a week or $520 a year.
Enter $2500 a year. What is the total then? Getting closer.
Time is on your side. You can plan that your investment will double every 7 years. The earlier you start, the bigger that Oak Tree grows or the fatter that Golden Goose becomes and the bigger she can lay retirement eggs.
STARTING A RETIREMENT FUND
I can hear it now: “I don’t have any money!!!!!” I get it. But don’t think either/or, All or Nothing. Think progressive journey. How many steps will it take to get you to where you want to be? A lot of LITTLE steps instead of one or two big leaps. Think steps, not leaps.
Take out a $1. Put it in an envelope. Write on the outside of the envelope, “Retirement Fund.” First step. Well done.
Keep doing this until you reach $250.
Then start taking a little bit of your pay (it might only be $2 a pay or $5 a month) and save it till you get $50, the lowest amount you can add to your $250 Mutual Fund (Roth IRA).
However, you will eventually have a full-time job. Plan on setting up a regular investment plan.
1st year - $50 every other month (make it automatic and regular). Have it automatically taken out of your checking account. $300/year
2nd/3rd years - $50 every month. $600/year
4th/5th years - $75 every month. $900/year
6th-8th years - $100 every month. $1200/year
9th-10th years - $150 every month. $3300/year
Keep adding EVERY time you get extra money, a raise, a bonus, etc.
MUTUAL FUNDS (Stocks and Bonds)
A mutual fund is a “basket” of stocks, bonds, and/or real estate. You purchase shares of the mutual fund, and you are investing in companies that are a part of that mutual fund.
So, once you get to $250, you can start a mutual fund.
A mutual fund is a collection of stocks or bonds from the stock market.
Stocks (partial ownership of a publicly traded company, like Disney, Apple, or Facebook) can be riskier (the bigger the risk, the greater the return. However, you can lose money more quickly too. Over time, this is the best way to grow your retirement Goose who will lay retirement eggs from which you can live.
Bonds are much safer but do not normally produce the kind of returns that will help you reach retirement. However, as you get older, since they are safer, they will need to be incorporated into your financial strategy.
Stocks are like a 21-speed bicycle. Bonds are like a tricycle. Saving your money in a local branch bank is like riding on an 8” Playskool scooter. You can’t get anywhere fast on those.
Let me recommend Red Oak Financial in Lincoln. Brad Neal and Stacy Tedrick manage American Funds, which many of the funds have averaged 12% over the last 70+ years. That is a lot better interest than the 0.20% in a local bank. Here are a couple of the funds that can be used for short or long-term investments.
Growth Fund of America (13.89% lifetime return - not bad!!!) (Top 10 holdings are [as of writing] Tesla, Microsoft, Netflix, Facebook, Alphabet, Amazon, UnitedHealth Group, Broadcom, ASML, Mastercard)
Fundamental Investors (12.44% lifetime return) (Top 10 holdings are [as of writing] Microsoft, Broadcom, Facebook, Amazon, Comcast, Alphabet, Philip Morris, Altria, JPMorgan Chase, Netflix)
Capital World Growth and Income Fund (10.47% lifetime return) (Top 10 holdings are [as of writing] Broadcom, Microsoft, TSMC, Alphabet, VAle, Netflix, ASML, LVHM, Abbott Labs, AIA Group)
You can either set up a short-term fund, where your money has to stay in for at least 1 year, or a long-term fund (Roth IRA) which would be your retirement fund. You can’t get access to it (without penalties) until you are 59 1/2.