Three Ways to Invest and Save Like a Millionaire—Even If You Aren’t One
By John Whitefoot for Daily Gains Letter |
The markets are up, and U.S. economic trends are slipping. The stock market may be hard to read, but the way Americans are saving for retirement isn’t. If the numbers are to be believed, Americans are saving too little, and our hopes for a comfortable retirement are in serious jeopardy.
According to a recent survey, U.S. workers are losing (or have already lost) confidence in their ability to have enough money for retirement. Fifty-seven percent of U.S. workers reported less than $25,000 in total household savings and investments (excluding their homes); in 2008, only 49% said they had less than $25,000 saved. (Source: Helman, R., et al., “The 2013 Retirement Confidence Survey: Perceived Savings Needs Outpace Reality for Many,” Employment Benefit Research Institute web site, April 16, 2013.)
The survey also found that 28% of Americans have no confidence they will have enough money to retire comfortably, the highest level in the study’s 23-year history. In 2007, 10% said they had no confidence.
Have the so-called recovery and record-reaching Dow Jones Industrial Average and S&P 500 helped those financially prudent Americans save more for retirement? Nope; only 13% of Americans are confident they’ll have enough money in retirement, a sharp decrease over the 27% of respondents who said they were very confident way back in 2007.
Debt might have something to do with it; 55% of workers and 39% of retirees said they struggle with their levels of debt, and only half said they could come up with $2,000 if an unexpected need popped up in the next month.
All things being equal, I think we’d all like to know how to make more money and protect what we’ve already earned. Unfortunately, with dwindling savings and increasing debt loads, the majority of us would be happy just knowing how we can make our retirement savings last longer. Here are three ways to stretch those savings out:
Only Invest Long-Term Money: It may not be as catchy as saying “only invest what you’re willing to lose,” but it rings truer. Don’t use money if it would negatively impact your day-to-day life. People really shouldn’t be risking their future by getting involved in the stock market, unless they have money set aside for that purpose. A rainy day fund collecting dust is the perfect investment vehicle; taking short-term money out on your credit card or from your mortgage isn’t. It might be fun to invest in the markets, but without cash, unexpected expenses could make lean times unnecessarily leaner.
Readjust Your Portfolio: Don’t be afraid to readjust your portfolio and diversify your investments by location or industry. If you are going long on oil and copper and the economy is slipping, readjust. Or if you’re invested in a region that is experiencing political or economic instability, readjust. Don’t stay long in a position just because you think “what goes up must come down;” you can bank on the stock market as a whole rebounding, but that’s about it.
Start by Investing in What You Know: There’s more to this statement than it may seem. Investing maverick Peter Lynch is famous for telling people to never invest in an idea you can’t illustrate with a crayon. Had we followed that advice, we may very well have avoided investing in mortgage-backed securities. At the same time, it’s easy to draw an “iPhone,” but it’s maybe not the best investment vehicle right now. Knowing what to invest in is a great start, but researching is the only way to expand your investing horizon.
Regardless of how much money you make, there are a number of wealth creation/preservation principles that anyone can follow.
Tags: Dow Jones Industrial Average, retirement, S&P 500, stock market, wealth creation