“Retirement is like an iceberg, where 90% of what’s really taking place lies below the surface, absent from traditional financial plans and conversations” Robert Laura
For a long and fulfilling life in retirement, you need much more than financial resources and financial security. Consequently, there are more valuable retirement assets than financial.
Retirement planning is typically related solely to financial planning, all about numbers. It centers around one question: Do your financial assets — pension, 401(k)s/IRAs, Social Security, property, sale of a business, etc. — provide enough income to fund your desired retirement lifestyle?
You’ll need enough money to get by, of course, but you don’t have to be super wealthy to be happy. In fact, life satisfaction tops out at an annual salary of $95,000, on average, according to a study by psychologists from Purdue University. Enough money to never have to worry about going broke or paying for medical care is important. But financial freedom is not the only or even the most important piece of a fulfilling retirement.
Once you have a retirement plan in place, it is essential to focus on all those things money cannot buy. There are non-financial assets that studies show can improve life satisfaction in retirement. According to Kiplinger Magazine, they include:
Good Health (Health is Wealth) – Good health is the most important ingredient for a happy retirement, according to a Merrill Lynch/Age Wave report. Studies show that exercise and a healthy diet can reduce the risk of developing certain health conditions, increase energy levels, boost your immune system, and improve your mood.
Strong Social Connections (Emotional Well-Being) – Happier retirees were found to be those with more social interactions with friends and family, according to one Gallup poll. Further, social isolation has been linked to higher rates of heart disease and stroke, increased risk of dementia, and greater incidence of depression and anxiety. A low level of social interaction is just as unhealthy as smoking, obesity, alcohol abuse and physical inactivity.
Purpose – Retirees with a sense of purpose or meaning were three times more likely to say “helping people in need” brings them happiness in retirement than “spending money on themselves.” Purpose can fall into three buckets, which means getting involved with your place of worship or spiritual pursuits, using your talents in service to others, and doing what you’ve always wanted to do.
Learning and Growing – Experts believe that ongoing education and learning new things may help keep you mentally sharp simply by getting you in the habit of staying mentally active. Exercising your brain may help prevent cognitive decline and reduce the risk of dementia.
Optimistic Outlook – Optimistic people tend to expect that good things will happen in the future. A fair amount of scientific evidence suggests that being optimistic contributes to good health, both mental and physical and may lower risk of developing cardiovascular disease and other chronic ailments and a longer life, and people with higher levels of optimism lived longer. Optimism is a trait that anyone can develop. Studies have shown people are able to adopt a more optimistic mindset with very simple, low-cost exercises, starting with consciously reframing every situation in a positive light. Over time, your brain is essentially rewired to think positively.
Gratitude – People who counted their blessings had a more positive outlook on life, exercised more, reported fewer symptoms of illness and were more likely to help others. Gratitude enhances people’s satisfaction with life while reducing their desire to buy stuff.
Dog Ownership – Older dog owners who walked their dogs at least once a day got 20% more physical activity than people without dogs and spent 30 fewer minutes a day being sedentary, on average, according to a study published in The Journal of Epidemiology and Community Health. Research has also indicated that dogs help soothe those suffering from cognitive decline, and the physical and mental health benefits of owning a dog can boost the longevity of the owner.
Retirement is major transition made up of many financial as well as life decisions. This is why it is important to create and to adhere a retirement plan as early as possible. That way you can spend more time focusing on everything else that equally matters.
Swing Trading attempts to capture short- to medium-term gains in a stock (or any financial instrument) over a period of a few days to several weeks.
Swing trading is a short-term stock trading style. You take smaller profits, cut losses quicker, and hold stocks for less time. To make it work, your rules for trading need to be specific to the shorter time frame. Though the gains might be smaller, the shorter holding period means you can compound your gains into big profits over time
Gains have more than made up for the losses. That’s the benefit of keeping losses small and admitting early that your timing might be off.
The first key to successful swing trading is picking the right stocks.
Swing traders should select their candidates from the most actively traded stocks and ETFs that show a tendency to swing within broad, well-defined channels. It’s necessary to keep a list of stocks and ETFs to monitor daily and become familiar with the price action of selected candidates. The best candidates are large-cap stocks, which are among the most actively traded stocks on the major exchanges. In an active market, these stocks will swing between broadly defined high and low extremes, and the swing trader will ride the wave in one direction for a couple of days or weeks only to switch to the opposite side of the trade when the stock reverses direction.
Swing Trading Strategy
Swing Trading is a strategy that focuses on taking smaller gains in short term trends and cutting losses quicker. The gains might be smaller, but done consistently over time they can compound into excellent annual returns. Swing Trading positions are usually held a few days to a couple of weeks, but can be held longer.
The basics of a swing trading strategy. targeting profit goal is a more modest 10%, or even just 5% in tougher markets.
Those types of gains might not seem to be the life-changing rewards typically sought in the stock market, but this is where the time factor comes in.
The swing trader’s focus is an average length of a trade is more like 5 to 10 days. In this way, you can make a lot of small wins, which will add up to big overall returns. If you are happy with a 20% gain over a month or more, 5% to 10% gains every week or two can add up to significant profits.
Smaller gains can only produce growth in your portfolio if losses are kept small. Rather than the normal 7% to 8% stop loss, take losses quicker at a maximum of 2% to 3%. This will keep you at a 3-to-1 profit-to-loss ratio, a sound portfolio management rule for success. It’s a critical component of the whole system since an outsized loss can quickly wipe away a lot of progress made with smaller gains.
Swing trading can still deliver larger gains on individual trades. A stock may exhibit enough initial strength that it can be held for a bigger gain, or partial profits can be taken while giving the remaining position room to run.
Swing Trading vs. Day Trading
Swing trading and day trading may seem like similar practices, but the major differences between the two have a common theme: time.
First, the time frames for holding a trade are different. Day traders are in and out of trades within minutes or hours. Swing trading is generally over days or weeks.
Day traders’ shorter time frame means they don’t generally hold positions overnight. As a result, they avoid the risk of gaps from news announcements coming in after hours and causing a big move against them. Meanwhile, swing traders have to be wary that a stock could open significantly different from how it closed the day before.
But there is an added risk with the shorter time frame. A wide spread between the bid, the ask and commissions can eat too large a portion of your profits. Swing traders can struggle with this too, but the effect is amplified for the day trader. Day traders can find themselves doing all the work, and the market makers and brokers reap the benefits.
For a swing trader, a string of losses or a big loss can still have a dramatic effect, but the lower leverage reduces the likelihood that the results wipe out your portfolio.
That leads to another time related difference: the time commitment. Proper day trading requires focus and attention on numerous positions and constantly looking for new potential opportunities throughout the day to replace exited positions. That means it isn’t a side job; day trading is your only job.
The extra time commitment of day trading comes with its own risk. Not having a steady paycheck makes a day trader’s income reliant on trading success. That can add an extra level of stress and emotions to trading, and more emotions in trading lead to poor decisions.
A swing trading style, by contrast, may have a few transactions some days and nothing on others. Positions can be checked periodically or handled with alerts when critical price points are reached rather than the need for constant monitoring. This allows swing traders to diversify their investments and keep a level head while investing.
“Saving is about putting aside money for future use. Investing is about putting your money to work for you with the goal of growing it over time.”
Saving money isn’t the easiest thing to do, especially if you’re one of the many of Americans living paycheck to paycheck. But saving for the future remains vitally important — not just to enable you to make large discretionary purchases such as a big screen television or a luxury vacation, but for emergencies, retirement, or buying a home.
Saving involves putting aside money for future use.
Investing involves putting your money to work for you with the goal of growing it over the long term.
To build your financial future, you need to do both, save for the future and invest for the long term.
Unfortunately, many of Americans aren’t where they should be financially. A 2019 Charles Schwab Modern Wealth survey found that about 59 percent of American adults are living paycheck to paycheck.
If you’re having a hard enough time paying the bills and putting food on the table without racking up debt, saving for the future is probably the last thing on your mind. Only 38% of people have an emergency fund, according to Charles Schwab, and one in five Americans don’t have a dime saved for retirement, according to a survey from Northwestern Mutual.
But, being a good saver certainly puts you ahead of the game. And having solid savings’ habits are an important step toward financial security. But saving by itself is not enough. While saving is about accumulating money for the future, investing is about growing your money over the long term. And that can make a huge difference in your financial future.
Begin your savings journey today for a better tomorrow
The hardest part about saving is getting started.
Basically, saving is putting aside money for future use. Think of saving as paying yourself first or an essential expense. From your earnings, you should take out what you intend to save for taxes first, if you’re a freelancer, and then take out 10% to 15% for savings. In other words, before you spend your first dollar on monthly expenses, first you should set aside 10% to 15% of income for your savings.
You can think of it as money you have left over once you’ve covered your essential expenses. Essentially, you should make saving a line item on your monthly budget, so that saving becomes one of your essentials. And, having money tucked away will help you pay for the things you want above and beyond your daily expenses, and also cover you in case of emergency.
Having more month left then money
A savings account is an interest-bearing account that helps you save money and earn monthly interest. Separate from your checking account and long-term investments, savings accounts can grow with regular deposits and compounding interest that you can use for your future, large purchases or emergency funds.
Having a sizeable savings account can help you stay out of debt and give you the cushion you need should you face an unexpected illness, job loss or expense. Plus, when you want something special like a week’s vacation, you’ve got the money.
Building a “cash cushion” is an important step towards financial freedom. In a cash cushion, or emergency fund, you want enough cash on hand to cover three to six months’ essential expenses.
Additionally, a well-rounded savings strategy should focus on both short-term and long-term goals, says personal financial expert, Carrie Schwab-Pomerantz CFP® major moves in order to save money — Those extra dollars are being used in two ways: to pay off debt (credit cards and student loans) and to save for a new home.
Most people keep their savings in a bank account. The upside is that it’s easily accessible and safe; the downside is that it won’t earn very much. Money in savings accounts is not likely to keep pace with inflation. Which means the money you have saved today can actually lose buying power over time. That’s why just saving isn’t enough.
Investing creates the action
Investing, on the other hand, is about putting your money to work for you with the goal of growing it over time. Here’s an example. If you put $3,000 each year in a savings account and earn 1 percent, at the end of 20 years you’d have about $67,000. If you invested that same amount of money and got an average 6 percent return over the same time period, you’d have nearly $117,000. The sooner you start saving the less you may need to save because your money gets to work that much sooner. The more you save, the more you have to invest—and the more those returns can add up.
Nobody knows, especially the talking heads in the financial entertainment media, if the stock market is going up or down tomorrow, much less six months or 12 months from now. Moreover, it should not matter if the market meltdowns one day and melt-up the next. When it goes down, you should invest. And, when it goes up, you should invest. In other words, you must consistently invest in the market. Do not let volatility and market moving news faze you, or cause a bout of investing paralysis.
Investing involves risk
Of course, investing involves risk. And the stock market particularly will have its ups and downs. But there are ‘tried and true’ ways to mitigate that risk. The key to mitigating risk is to diversify by choosing a broad range of investments in stocks, bonds, and cash based assets that aligns with your financial plan asset allocation, risk tolerance and time horizon and never put all your money in one particular stock or asset.
One other important factor is time. To protect yourself against market downturns, a long-term approach is essential. At your age, you have time to keep your money in the market and ride out the inevitable market lows. The trick is to stick with it through those lows, keeping your focus on the potential for long-term gains.
Beginning with your next paycheck, commit to paying yourself first. Develop a budget, evaluate your spending needs, and understand your long-term goals.
“The volatility of the financial markets during the first half of 2020, punctuated by the most sudden, steep decline in U.S. market history, tested the mettle of most investors. Despite the gut-wrenching drop of nearly 34% in the S&P 500 Index in just over a month, Vanguard investors held firm, sticking with their plans and, in some cases, rebalancing into equities during the downturn. This discipline ultimately results in better outcomes over the long term.”
Tim Buckley, Vanguard Chairman and CEO
“Stay the course” doesn’t mean do nothing during market volatility or drop. It means stick to your investment plan. If you’re a long term investor or retired, focus on what you can control, such as your spending and asset mix.
A willingness to weather sudden market drops is an important part of long-term investing. Although it is a natural instinct to seek to preserve capital when the market drops precipitously, too often investors remain on the sidelines and miss the inevitable recovery.
Back in March 2020 during the height of stock market volatility and as many retail investors sold stocks in a panic, most financial experts reminded investors to stay the course. They reminded investors that a balanced, diversified portfolio is built to weather tough markets. The majority of investors (83%) held fast from late February to May and didn’t transact. Even better, 9% of their clients rebalanced into the storm, buying equities and regaining their targeted asset allocations. Rebalancing helps mitigate risk, and it is a staple of their advice.
They strongly recommended keeping a long-term perspective and don’t get thrown off by short-term volatility.
Vanguard Global Chief Economist Joe Davis and Financial Advisor Jessica McBride shared how to navigate market volatility in a webcast earlier this week. Hear their thoughts on staying the course during uncertain times: https://t.co/IGJoDxzOr6
Why is staying the course so important? As an extreme example, consider the investor who lost faith in the markets and cashed out on March 23, the low point in the U.S. stock market. Stocks subsequently rebounded more than 39% over the next three months; the unfortunate individual who moved to a money market fund earned a meager 0.14%. Our analysis found that about 85% of investors who fled to cash would have been better off if they had just held their own portfolio.
Financial independence is achievable by anyone who focuses on thing within their control:
– Their savings rate – Choosing the right investment strategy – Keeping investment costs low – Patiently staying the course
Additionally, just as investors should stay even-keeled during stock market downturns, they should ignore the euphoria of a sudden surge in the market and the fear of missing out on easy gains from investing in stocks such as Tesla, Apple or SalesForce.
Staying the course isn’t easy. Instead, focus on what you can do during market volatility, and you (and your portfolio) can get through difficult times of market volatility and declines. Nobody wants to spend less because the market is down. But you can control what you spend.
With the right mindset and hard work, achieving your financial goals are possible. However, you have to start by understanding and eliminating your negative thoughts. If you believe there’s no point trying to achieve your financial goals and to go for the life you want, then you’ll never achieve them. Therefore, you might be tempted to make choices that make your financial position worse.
Achieving a positive mindset can be difficult, but there are some proven techniques that’ll help you:
Take care of yourself physically and emotionally
Know where you stand financially
Set achievable financial goals
Make small changes
Try to see the positive and maintain a positive attitude
Your financial security and well-being are determined by your mindset. Financial security gives you the time and opportunity to do the things that might make you happy. Taking control of your financial life and changing the way you think can make a huge difference.
With a positive and determined mindset, you can set goals and make plans to achieve them. You’ll remain focused on your goals and create the extra money to save and invest toward achieving those goals.
For example, if you want to retire early, the way to do so is to make more money, spend less, and invest more. You’ll need to resist temptation to spend what you have or to not spend what you haven’t got.
Even with a positive mindset, you won’t achieve your goals overnight. But it’ll put you on the right track to take more control over your finances.
There are three ways to take control and have more money to invest and accumulate wealth.
First is to make more money.
Second is to spend less.
Third is to invest for the long term and grow your money.
You’ll need to combine financial literacy with a plan and self-control. And when life throws you a financial curve ball, you’ll need to stay positive – remaining focused on your goals and not make excuses.
Financial security
Safety and security are incredibly important human needs. And, people must feel secure before they’re able to address their “higher-level” needs of belonging, esteem, and self-actualization according to Maslow’s Hierarchy of Needs.
Security expert Bruce Schneier states, “Security is both a feeling and a reality.” But feeling and reality can be quite different. “The reality of security is mathematical,” says Schneier. It’s all about the probability of risks and the effectiveness of corresponding countermeasures.
Most of people try to achieve financial security mathematically. We consider all the potential financial risks we face – unemployment, illness, unexpected costs, etc. – and try to determine reasonable countermeasures for each of those risks. You might not consider yourself financially secure until you have adequate emergency savings to last being unemployed for 6 months.
Security is a feeling on your psychological reactions to both risks and efforts to reduce risks. You can create a reality of security and still not feel secure. Similarly, you can feel secure and yet not really be secure in your current position.
When it comes to finances, you can stable employment, be in great health, and have money saved up – and still not feel secure with your money.
Financial goals are great, but if your fears and worries about money are holding you back, there’s a lot to be said for simply trusting in yourself and your abilities.
Build your savings. Find the ideal job. But also give yourself the proper credit for being able to make due when the unexpected happens.
Having a positive financial mindset is the foundation for taking control of your money and becoming more financially stable. Setting yourself goals, addressing and eliminating bad habits, and learning how to get a handle on your thought processes will help you to manage your finances and put you in a better position with all aspects of your life.
“If you’ve got $25,000, $50,000, $100,000, you’re better off paying off any debt you have because that’s a guaranteed return.” Mark Cuban
The late Jack Bogle was fond of saying, “Nobody knows nothing.” Which demonstrates that predicting the future is always hard, but 2020 illustrated to us just how difficult it can be. If you would’ve predicted that U.S. domestic stocks would rise over 10% in the same year as a global pandemic, no one would have believed you. But that’s what makes markets so complex and volatile, especially in 2020, a year unlike any other.
The real problem is that there are too many economic and financial market unknowns to consider in the coming years and decade. And, he says, we, as a nation, are not focusing on what he believes to be the single most important concern in the economy: the “soaring cost of health care”. There is also the soon to be problem of pandemic caused ballooning federal deficits and national debt as a percentage of GDP.
Elected officials seem content to continue to kick the health care cost can down the road. But, with all of the potential economic uncertainty and financial market volatility, it’s hard to know what to do when it comes to investing.
The U.S. stock market is the greatest wealth-creation tool in history.
Investing in the stock market allows you to become a partial owner of thousands of profitable and growing companies. And, when paired with the power of compounding, the market is what allows you to save for retirement.
Below are five pieces of advice for investors who are worried about the turbulent economy and volatile financial markets:
Keep investing. Keep putting money away. Despite fluctuations in the market, Investors should continue to save. And if the market dips? That’s okay since a lower market can be beneficial for funding longer-term goals such as retirement and education. Saving is always a good idea, and if you can add to savings when the market is low, you may be in a better position when the market goes back up.
Pay attention to asset allocation. A good starting point for asset allocation, according to most financial advisors is a portfolio consisting of 65% stocks and 35% bonds. That’s it. “Stay out of the exotic stuff,” he says, however, noting that the allocations of assets may change depending on age and circumstances. If you’re younger, for example, you might skew towards investing more in stocks: you have time to take more risks. However, if you’re older, you might consider putting more in bonds, typically more conservative and consistent. But don’t tilt too far in either direction, he warns, noting that you should pay attention to the norms.
Diversification is the key to any successful portfolio, and for good reason–a well-diversified portfolio can help an investor weather through the most turbulent markets. Diversification is the practice of spreading money among different investments to reduce risk. Historically, stocks, bonds, and cash have not moved up and down at the same time. The rationale is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security. Diversification is a strategy that can be neatly summed up as “Don’t put all your eggs in one basket.”
Expect lower returns. For years, the market was flush and paying out significant returns. That’s not going to continue. You should expect to see lower stock returns for the next 10-20 years, noting that 12% returns moving forward isn’t realistic. The same is true when it comes to bonds, he says, claiming that 6% returns are not in the cards. Managing those expectations is key.
Don’t pay attention to fluctuating markets and keep putting money away so long as you are able. Remember that the markets – and your own investment strategy – may change over time. That shouldn’t make you so nervous that you bail. “Stay the course.”
If 2020 taught investors anything, it was, “Nobody knows nothing.”
It’s important to focus on saving and investing. You need to live below your means and invest the difference to accumulate wealth. There’s no backdoor trick around that fact.
“If you avoid the losers, the winners will take care of themselves.”
If you’re new to the world of investing, figuring out how and where to start can be daunting. Investing involves putting your money into an asset with the hope that the asset will grow in value or generate profit over time.
Deciding on which goals, on different kinds of accounts and investments are critical first steps to get you moving in the right direction.
The world of investing can seem vast and overwhelming if you haven’t been a part of it before. But if you take things one step at a time, you can make a plan that’ll get you started on the right path toward your financial goals.
Put your goals first. It’s important to decide what those goals are. Maybe you want to save for retirement.
The Joneses are in debt…Make your lifestyle and purchasing decisions based on what you can afford, not what your peers are buying, and instead of coveting thy neighbor’s car, try to feel smug about your fat retirement account, your zero credit card balances, and the car you own free and clear.
If it’s good for the planet, it’s usually good for your wallet. Think: small cars, programmable thermostats, compact fluorescent lightbulbs, a garden, refilling your water bottle…the list goes on.
“The biggest mistake you can make is to stop laying the foundation of a generational wealth developing portfolio because it feels temporarily monotonous.”
The primary reason you are investing is to create or preserve wealth, and no one cares more about your personal financial situation — saving for the future, investing for the long term, and accumulating wealth — than you do. So be proactive. Do your research before buying a security or fund, ask questions of your adviser and be prepared to sell any investment at any given time if your reasons for selling so dictate.
Consistency is a key characteristic of successful investors. But as many longtime investors know, it’s hard to stay consistent when volatility whipsaws one’s portfolio, or when losses pile up, or even when one’s portfolio is perceived to trail those of one’s peers. All those factors can drive an investor to abandon their plan and make trades they might one day regret.
The secret to successful investing isn’t talent or timing…it’s temperament, according to Jean Chatzky, New York Times Bestselling Author and financial editor at the TODAY Show.. Sad but true–human psychology works against the behaviors that have historically led to good long-term returns.
Your goal should be excellence in investing. This means achieving attractive total returns without the commensurate higher risk. Your objective must be to strive for superior investment returns. Your first investment priority is to produce consistency, protect capital, and produce superior performance in bad times.
It takes superior performance in bad times to prove that those good-time gains were earned through skill, not simply the acceptance of above average risk, according to Howard Marks of Oaktree Capital. Thus, you should place the highest priority on preventing losses. Since, it is should be your overriding belief that, “if you avoid the big losers, the winners will take care of themselves.”
You can have too much of a good thing
The power of asset allocation is all about building an intelligent portfolio of stocks, bonds, and other asset classes also means you’ll have less to worry about and more to gain. Asset allocation and asset class mix are a few of the most important factors in determining performance. Look at the size of a company (or its market capitalization) and its geographical market – U.S., developed international or emerging market.
Financial advisory firm Edward Jones recommends that, when owning individual securities, you consider a diversified portfolio of domestic large-cap and mid-cap stocks. For the more volatile international, emerging-market and small-cap stocks, they favor a mutual fund to help manage risk. Remember, while diversification cannot guarantee a profit or prevent a loss, it can help smooth out performance over time since stocks, bonds, real estate, gold, and other investments move in different directions and are influenced by different economic factors. By holding multiple asset classes, you reduce your risk and increase the return you get per “unit” of risk you take on.
The worst health crisis and economic downturn in decades widens the wealth and income inequality gap in America
Federal Reserve Chairman Jerome Powell noted that the COVID-19 economic downturn did not fall “equally on all Americans,” and he warned that if the job losses and economic fallout were not contained and reversed, “the downturn could further widen gaps in economic well-being.”
When a large group of the population, such as the working class, is in economic distress, their spending is limited. And in a consumer-driven economy, spending is what drives the economy, corporate earnings, and, ultimately, the stock market.
Bloomberg on #wealth#inequality: "The world’s wealthiest 500 individuals are now worth $8.4 trillion, up more than 40% in the year and a half since the global pandemic began its devastation." Also important to keep front and center the worsening in the inequality of #opportunity
“Income and wealth inequality is soaring, wages for workers have been stagnant for almost 50 years and some billionaires pay nothing in federal income taxes.” Bernie Sanders
The share of wealth in the economy is increasingly owned by families in the top of the income distribution, according to The Brookings Institution. The top 20 percent held 77 percent of total household wealth in 2016, more than triple what the middle class held, defined as the middle 60 percent of the usual income distribution.
Consequently, lower-income households are a critical source of growth because they are more likely to spend any additional money they get. According to a working paper by the Chicago Fed in May, those who lived paycheck-to-paycheck spent more than two-thirds of the recent $1,200 relief checks within two weeks, while those who save much more of their monthly pay spent less than a quarter.
Economic, wealth and income disparity creates deep divides, which increase political risk for investors and opens the door to potential tax and regulatory changes that can weigh on corporate earnings and job creation.
Economic inequality is nothing new, and the human costs through generations aren’t easily quantifiable. But there is a growing consensus that rising income inequality and the wealth gap will play a crucial role in the strength of the economic recovery and future economic growth.
In the U.S., the top one percent holds more wealth than the middle class, according to data from the Federal Reserve. They owned 29 percent—or over $25 trillion—of household wealth in 2016, while the middle class owned just $18 trillion.[iii]
This has not always been the case. Before 2010, the middle class owned more wealth than the top one percent. Since 1995, the share of wealth held by the middle class has steadily declined, while the top one percent’s share has steadily increased.
Yet, a little more than half of U.S. households own some stock, usually through 401(k) plans, just 10% of households own 84% of the stock market, which means a swath of Americans didn’t reap the benefits of the last bull market and the recent stock market rebound.
The U.S. is a wealthy country, but it is becoming one in which a very small number of its citizens own a vast majority of the wealth, and from which both younger Americans and the broad middle class are failing to benefit. The widening wealth inequality explodes “…the myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most,” ProPublica reporters, Jesse Eisinger, Jeff Ernsthausen and Paul Kiel report. “The IRS records show that the wealthiest can — perfectly legally — pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.”
“If your goal is to become financially secure, you’ll likely attain it…. But if your motive is to make money to spend money on the good life,… you’re never gonna make it.” Thomas Stanley and William Danko
Your financial independence is far more important than showing off your wealth, according to authors of Millionaire Next Door, Thomas Stanley and William Danko. They assert that millionaires frequently remind themselves that those who spend all their income on high-priced luxury items often don’t have much accumulated wealth to their names and tend to live on the paycheck to paycheck treadmill.
Yet, many paths exist to building wealth which have little to do with wages and income. Wealthy people tend to practice daily habits that are designed to protect and grow their assets and help keep their body and mind in balance, according to financial experts who’ve studied subject.
They have found over and over again that you don’t have to be a high-income one-percenter to be wealthy. Many wealthy individuals never made more than $60,000 to $70,000 per year, but did a very good job of managing their expenses, cash flow and spending behavior. “Many people who live in expensive homes and drive luxury cars do not actually have much wealth”, according to Thomas and Danko. “Then, we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.”
Wealthy individuals generated several million dollars of net worth, simply because they started financial planning early in life, they saved as aggressively as they could afford to, and they invested that money in assets and stayed invested over the long. In short, “one of the reasons that millionaires are economically successful is that they think differently.”
Live Below Your Means and Practice Gratitude
“Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self-discipline.” Thomas Stanley and William Danko
Related to not showing off your wealth, authors Stanley and Danko found that the vast majority of millionaires didn’t spend a lot of money and were grateful for things they did own and the lifestyle they lived. In fact, they spent well below their means given their fortunes. In addition, the majority of the wealthy reported that they created and followed a personal budget, and created and maintain a gratitude journal. In other words, they respected their wealth, kept their spending on a tight leash and practice gratitude daily.
There are a few key habits of building wealth:
Remember to pay yourself first. Basically, paying yourself first is about having your financial and budgeting ducks in a row. One key to building wealth is creating a budget and sticking to it. Wealthy people know how to hold the line on discretionary spending items that can help them increase the “invest” portion of their monthly budget.
Look ahead at your goals. Wealthy people typically set concrete goals, both personal and financial, and have a long-term focus that looks years, if not decades, down the road. The more specific the goals and the longer term the goals are, the better. The wealthy understand that it begins with setting personal goals—what you want to get out of life and how you might prioritize your list. And once you have an idea what you want to accomplish personally, you can plot a financial road map to help steer you there. In other words, the path to wealth involves starting early, and focusing on the long term.
Do your homework; keep your cool. Markets go up, and markets go down—often suddenly and for no apparent reason. Define your comfort level with risk, keep your emotions in check, and recognize what you can and can’t control. According to Siuty, there’s no “secret sauce,” except that, to build wealth, it helps to “stay disciplined, be methodical, and not let emotions get the better of you.”
Lead a non-lavish lifestyle. Despite the popular characterization of rich people throwing money wantonly around in movies and TV, in reality, wealthier folks actually tend to look for value in their purchases. They generally understand the difference between price and value. In other words, they’re not afraid to open the pocketbook, but they tend to expect value in return.
Always expand your education. Education is one of the keys to success, and reading is one of the most efficient ways to learn. According to Thomas Corley, author of Rich Habits: 67% of the rich watch TV for one hour or less a day. Only 6% of the wealthy watch reality shows, he wrote, while 78% of the poor do. And, 86% of the wealthy “love to read,” with most of them reading for self-improvement.
Get up early, eat healthy, exercise. The wisdom that “time is money” goes all the way back to Benjamin Franklin, so it’s no surprise that the wealthy tend to wake early and make the most of their time. The other aphorism the wealthy take to heart is “health is wealth.” According to Corley, 57% of wealthy people count calories every day, while 70% eat fewer than 300 calories of junk food per day. Some 76% do aerobic exercise at least four days per week.
Practice Gratitude. Gratitude makes people more optimistic and positive. It improves relationships, which is strongly correlated with financial success, as well as health, happiness and longevity. And, grateful people are less likely to purchase things they don’t need and that can help them save more! The bottom line is this: It doesn’t matter how much you have if you don’t appreciate it! Without gratitude, you’ll never feel successful and wealthy, no matter your net worth. So regardless of your level of financial success, practicing gratitude is essential.
Seeking a life of balance in mind and body, creating measurable goals, and prioritizing saving and investing, can help put you on the right path, and help keep you from straying from that path. And the earlier you start, the better.
“Invest early and often. Make time for friends, and start setting aside money for your goals as soon as you can in good markets and in bad.” Vanguard Investment
Investing is accessible to everyone regardless the size of your monthly paycheck or bank account. There are plenty of small investment ideas for as little as $20 or as much as $10,000. Everyone needs to start somewhere. In fact, if you’re just beginning your investing journey, it’s smart investing practice to start small.
When it comes to investing, “small” means something different to everyone. And, there are a few small investment ideas based on your budget. Over time, even small investments can reap big returns.
Yet, according to Goldman Sachs, stock ownership is extremely concentrated among the top 1% of Americans. As a result, the market’s performance affects households making up the wealthiest 1% of Americans much more significantly than the other 99%.
“The wealthiest 0.1% and 1% of households now own about 17% and 50% of total household equities (stocks, bonds and mutual funds) respectively, up significantly from 13% and 39% in the late 80s,” Daan Struyven, Goldman Sachs’s chief economist said.
In contrast, the bottom 50% of Americans owns 0.5% of household equities (stocks, bonds and mutual funds).
Start investing
The perfect time to start investing is now. It’s easy to imagine yourself investing money when you’re older, wiser and richer. However, you don’t need to have a large sum of money to make investing worthwhile.
It’s never too late to start, but the sooner you begin, the better. Your investment will have more time to reap the rewards of long-term compounding. Compounding happens when your investment earns money, and those earnings are reinvested for continued growth.
A program of regular investment cannot assure building wealth or protect against a loss in declining markets. A continuous or periodic investment plan involves investment in shares over the long-term regardless of fluctuating price levels and market volatility. You should consider your financial ability to continue purchasing shares during periods of low price levels and high market volatility.
Stocks and bonds are the building blocks of a long-term investment strategy.
With the right strategy, starting small can be an advantage. And, whether you’re investing with small money or big money, you will follow the same basic investing strategy. The best way to invest $20 is in fact, the best way to invest $10,000. Investing is always investing.
The value of the investment, versus the price you pay for an asset, is always the top priority. You first want to consider the value of the asst you want to invest, or “how much the thing you want to invest in is actually worth”. Then, what is the price? If the price is less than the value, then you’re off to a good start.
There are lots of different types of investments you can make, but not all investments are great for small amounts of money. For example, you can’t invest in real estate with $500, and even though you can invest $500 in Exchange Traded Funds and bonds, it doesn’t mean you should.
If you put $500 in ETFs or mutual funds each year for the next 30 years and get the long-term historical return of 7%, you’ll have in 30 years approximately $45,000 (less fees for mutual funds).
Investing in bonds with a historical return of 5% over the next 30 years, your investment will grow to around $35,000. Bonds may be the safest way to invest, but how safe is a retirement of $35,000?
What asset will make you the most wealth, the answer is almost always investing in stocks over the long-term. Historically, the stock market has returned 7% over the long term.
The number one thing beginning investors typically say that holds them back from making even the smallest investment: fear of the stock market.
Overcome Your Fears of Investing in the Stock Market
The stock market can be scary and risky to both beginning and seasoned investors if you don’t know what you’re doing. But one of the key principles of investing is to invest only in businesses you know and understand. You can overcome the fear and risk of the stock market if you understand the company and industry you are investing.
It important to understand that when you purchase stocks, you are buying partial ownership of a company. Thus, putting money into things you don’t understand is not investing. It’s speculation and speculating on stocks is equitable to gambling. Regretfully, that’s how most small retail investors retirement and brokerage accounts are managed.
That’s why you should consider learning how to invest. Which is when you buy wonderful businesses you understand at undervalued prices that guarantee great returns. If you do this, you will be able to overcome your fear of investing and set yourself up for success.
“Risk comes from not knowing what you are doing.” – Warren Buffett
Can’t stress enough how important it is to just start.
It is better to start with small investments and add to them over time than to wait and lose out on great returns as well as the power of compounding interest. Every day you don’t invest you are losing out on compound interest. With compound interest, when your money grows, its growth is also invested.
There’s a tool called The Rule of 72 that does a good job of explaining the power of compounding interest and will show you just how fast your money can double. This is how even small investments can pay big dividends.
Buy wonderful companies at attractive prices.
If you really want to learn how to invest, it takes a good amount of due diligence and patience but the long-term payoff is worth it. By following smart investment practices that have made people like Warren Buffett extremely wealthy, you will not make money fast but you will make more money over the long term.
Warren Buffett started with a small amount of money and he turned it into more than $80 billion. This goes to show that it isn’t about the money you have, it’s about the knowledge you have, the patience and the long term perspective.
That’s good news if all you have to invest is a small amount. It means there are no real barriers to building wealth if you’re willing to work hard and learn. When you know how to invest like the wealthy, you won’t ever have to risk losing all of your money to do it. This isn’t Las Vegas or is it gambling.
Make A Promise to Yourself
You have a small amount of money to invest, but are you really ready to put your money where your mouth is? If so, make a promise to yourself that you are going to do your due diligence to find the right companies, buy them at attractive prices, and double your $1000 over the next 5 years.
Once you have made that commitment, the key fact to understand is that you make money by buying wonderful companies and buying them on sale.
A wonderful company, according to Charlie Munger, partner of Warren Buffett, have four things you’ve got to focus on when you invest your $1000, or any amount of money, in a company:
Number one, be sure you’re capable of understanding the business that you’re getting into.
Number two, be sure that this business has this thing that we call a moat: something deeply embedded in it that protects it from the competition.
Number three, make sure that the management team is made up of people who share your values, have integrity, and are talented.
And finally, make sure you buy it on sale. “Sale” means at a purchase price with a margin of safety.
If you know the Meaning behind the company, it has a Moat to protect it from competition, the Management is trustworthy, and you can buy it with a Margin of safety that will give you 15% returns year over year, it is a great investment.
When it comes to making great investments, it’s really not about the amount you’re starting with, it’s about the strategy you’re using. The right strategy is going to continue to grow that initial investment over time. Even if you’re starting with a small amount of money, if you’re making an average of 15% returns year over year, you’re doing good.
Consider Risk
Typically, more risk = more reward, but that doesn’t mean you should throw away everything you learned above. You can minimize your risk and maximize your reward by investing in wonderful businesses on sale. Yes, even if you’re only investing with $500. This initial investment, while small, will help you get more comfortable with “the risk” of investing.
Starting small investment is totally fine – baby steps are better than no progress at all. The fact that you’re even thinking about investing when you only have $20 means you’re in the right mindset. One of the best things that you can do to begin investing when you have very little money is to form good habits. Practice these good habits with $20 and you’ll have a good financial future ahead of you.
No investment is too small. Small investments such as $20 still grow, especially when you invest $20 on a regular schedule. That’s really all it takes. Not only will your $20 investment grow, but it will also help you conquer your fear and keep your promise to yourself. You can start investing even with a small amount of money. Everyone needs to start somewhere.
Don’t Wait
You can start forming good habits by taking money out to invest as soon as you receive your paycheck.
Most often, people end up taking the exact opposite approach, waiting to see how much money they have left over before they invest. However, if you wait to see how much money you have left over before investing it, the number will almost always be a big ‘ol zero.
Instead, invest your $20 straight out of your paycheck and watch it work for you. Setting aside money to invest right away, even as little as $20, can become a natural, nearly subconscious act when you do it regularly.
Source: Phil Town Rule #1 Investing
Avoid Money Traps
It’s simply too easy to spend money rather than investing it if you make spending it an option. Spending your hard earned money on things like luxury vehicles, big houses, expensive vacations and weekend nights out can mean you have less to invest. Avoid these money traps and focus on your long term financial goals and the promise you made to yourself. Take your $20 and invest it in a great company rather than its fancy product.
Don’t Just Put Assets in a Saving Account
Saving isn’t inherently bad, but if you want to get a great return on your money and create generational wealth, it won’t happen by saving it. Most Saving accounts only offer 2% interest, which means you can hardly beat inflation, which means your money won’t really grow at all.
Think of your investment account as your saving account and you’ll be well on your way to “saving” $10,000 this year.
No investment is too small. Small investments such as $20 still grow, especially when you invest $20 on a regular schedule. That’s really all it takes. Not only will your $20 investment grow, but it will also help you conquer your fear and keep your promise to yourself.
How to Invest
By now, you should know you can start investing even with a small amount of money. Everyone needs to start somewhere. Investing is something anyone can succeed at with the right approach, no matter how much or how little money they are starting with.
When you don’t have any money, you have to step out on a limb. Take some chances, put what money you do have to use, and start climbing your way up. Again, everyone has to start from somewhere, and there’s no such thing as having too little to invest.
Benefits of Investing
There are advantages to investing with small amounts of money as well. With the right approach and by taking the right risks (safe ones) you can make the most out of small investments.
Starting Sooner
Investing when you have little money means that you’re starting to invest sooner rather than later. When you start now, even small amounts of money put into the market can grow into legitimate sums of money as the years go by.
Continue to Learn
Investing isn’t about just jumping in with $1,000 and it’s not about waiting until you have more to jump in with. It’s about finding wonderful businesses you want to own and finding the right time to buy them. With these small investment ideas, you can start right now whether you have $1000, $500, or $20 to invest.
Follow the lead of the best investors and take the next step in your investing journey by continuing to learn more.
Investing…get going, get growing and continue to learn.
Investing money involves some risk, but be aware that not investing also poses a risk, because you’re missing out on the opportunity to build wealth for the future. To help manage investment risks, it’s important to choose a portfolio that’s designed for you.
