Most of us are well versed in music and movies. We talk about our likes and dislikes, new discoveries, and old favorites. We talk about platforms like Netflix, Hulu, Spotify, and Pandora. We easily share information and learn from each other…
Unfortunately, money is not like this. Money is taboo. As a society, we don’t talk about it – and the transfer of knowledge is slow.
Far too many young people have no retirement savings. I’m no financial advisor, but I am interested in having a discussion, with anyone who wants to have one, about saving and investing money. So, here some methods for saving money that have worked well for me. If you have any questions about them, please let us know!
The amount is irrelevant. Even $5 or $10 a week adds up over time. The important thing is to get in the habit of saving money. Technology makes saving money easier than ever before.
- Setup a secondary bank account (checking, savings, whatever). Most banks offer free (or very low cost) accounts.
- Setup an automatic transfer (again free) to transfer money from your “spending account” into your “savings account” on payday.
Saving $5 per check will essentially go unnoticed. $5 is a beer from a microbrewery or a meal from a fast food restaurant.
A drawback to saving money in the bank (or putting it under your mattress) is that inflation eats away at the value of money. Inflation has averaged about 2.4% since the year 2000. That means that a dollar from the year 2000 can buy about $0.64 worth of stuff today. That brings us to the next section…
Invest In The Stock Market
Stocks offer protection against inflation. The stock market has returned an inflation adjusted growth rate of 6.9% per year since 1926. This growth rate also includes events as diverse as the Great Depression, World War II, runaway inflation, booms, busts, recessions, panics, and so on.
As nice as all that sounds, 6.9% isn’t really a great return, so when it comes to stocks, a long time period for growth is your best friend. $1 invested by a 22 year old will be worth $17.70 when that person turns 65 years old, whereas $1 invested by a 30 year old will only be worth $10.40 at 65.
Investing Is Easy
Again, technology makes investing easier today than ever before. There are a ton of low cost, user-friendly investing platforms. If you can sign up for Facebook, you can sign up for an investment account. Nerdwallet offers some reviews some here.
What To Invest In
Here’s some advice from Warren Buffet (one of the most successful investors of all time) to his wife: “My advice could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund, I suggest Vanguard. I believe the long-term results from this policy will be superior to those attained by most investors.”
An ETF allows you to buy a group of stocks, which is handy. Following Buffet’s advice, consider VOO, which is Vanguard’s S&P 500 index. Buying 1 share of VOO is actually a tiny investment in every company in the S&P 500 index.
If VOO isn’t your cup of tea, don’t fret. There are over 1,400 ETFs out there. I’m sure one of them will be right for you.
Buy and Forget
Again quoting Warren Buffet: “For investors as a whole, returns decrease as motion increases.” In other words, the more you buy and sell, the less money you make.
When investing in something broadly diversified such as the entire S&P 500, just invest the money, then forget about it until you turn 65. Those people who freak out when the stock market fluctuates are just being dramatic – or they have made poor choices like investing borrowed money. If you invest in a broadly diversified fund, your money is safe, short of an entire economic/government collapse.
Get Professional Advice
Again, I’m not financial Advisor. The strategies above are the basics, something to get you started if you currently have nothing set aside. It would be a good idea to seek the advice of a professional, firstname.lastname@example.org would be a good choice.
Want to learn more?