An article about "saving early"

[Tpoints]

I am not against saving money. But if you put aside the fact that 7% is nowhere to be earned, not without risk, and definitely not for 40 years.

Consider this :
Let me give you a real example: Say you have Sarah, who decides at 25 to save $1,000 a month. She does that for 10 years. And then she stops. Then you have Roger, who waits until he's 35, and he saves $1,000 a month for 30 years. They both earn 7 percent on their savings.

Now, 30 years after she stops contributing Sarah would have $1,262,089.05. But Roger, who would have put away three times as much as Sarah, would only have $1,133,529.44.

The reason Sarah only saved a third as much as Roger but ended up with more money is because she started earlier.
http://finance.yahoo.com/news/invest...154751502.html

Doesn't that mean, if Sarah paid off her house in 10 years, Roger paid 3x for his house after 40 years while Sarah can be wasting $1000 a month for the remaining 30 years? Obviously most people can't earn 7% on their savings, so how can you make this work to your advantage?

What in this country is a guaranteed fix rate other than CD, bonds, child support, and mortgage?

[erowe1]

Obviously most people can't earn 7% on their savings

I think that financial experts usually figure 7% is a good amount of growth to count on as an average over a long period of time for a portfolio that includes mutual funds, but that is still relatively low-risk.

[Tpoints]

I think that financial experts usually figure 7% is a good amount of growth to count on as an average over a long period of time for a portfolio that includes mutual funds, but that is still relatively low-risk.

is there a 20 or 30 year record to support that?

[erowe1]

is there a 20 or 30 year record to support that?

Yes. Absolutely. I doubt there have been any 20-year periods in the history of any American stock markets that they didn't average better than 7% a year.

As bxm said, mutual funds may or may not continue to be good investments. But historically, 7% has been a safe estimate for them.

[Tpoints]

Yes. Absolutely. I doubt there have been any 20-year periods in the history of any American stock markets that they didn't average better than 7% a year.

As bxm said, mutual funds may or may not continue to be good investments. But historically, 7% has been a safe estimate for them.

Not even from 1989-2009? or 1979-2009?

[erowe1]

Not even from 1989-2009? or 1979-2009?

7%/yr. over 20 years would be a total return of 387%. Over 30 years it would total 761%.

On Jan. 9, 1979, the Dow closed at 831.43.
On Jan. 9, 1989, it was 2,199.46.
On Jan. 9, 2009, it was 8,599.18.

So from 1979 to 2009 it went up 1034%.
And from 1989 to 2009 it went up 391%.

ETA: I have to take back what I said though. The Dow didn't recover from the 1929 crash until 1954. So a period including that would have to be much longer than 30 years to get back up to an annual average of 7%. But even when you do include that period, I'm pretty sure you'd get back to a 7% annual average if you go out to 40 or more years.

[libertariantexas]

is there a 20 or 30 year record to support that?

Yes, just about any 30 year period- the one exception being the great Depression, when it took 40 years to get back to the historic average rate of return.

Note that the example in the story was NOT for a 20 or 30 year period, but for a 40 year period (she invested from 25-35, then stopped, and had more at age 65, 40 years from the start of the exercise).

Yeah, yeah. I know. This time it's different. It's always different "this time."

The world is going to end and we will never get back to the historic trend, so why bother trying to save and invest, right?

Well, what if you are wrong and the world doesn't end?

You'll be sitting there 40 years from now eating beans and Alpo for lunch, when others are living well, because they planned for the future.

[Tpoints]

Yes, just about any 30 year period- the one exception being the great Depression, when it took 40 years to get back to the historic average rate of return.

so ever since then everybody who invested in mutual funds never lost money? That's not what the news has told me in 2009. From what I heard everybody lost 50% or more on their retirement unless they were conspiracy theorists who invested in gold or placed hedge funds betting on the housing bubble.

Note that the example in the story was NOT for a 20 or 30 year period, but for a 40 year period (she invested from 25-35, then stopped, and had more at age 65, 40 years from the start of the exercise).

Yeah, yeah. I know. This time it's different. It's always different "this time."

The world is going to end and we will never get back to the historic trend, so why bother trying to save and invest, right?

No, I didn't say that. Saving is great, but to think you'll always make 7% as if it's some guarantee is naive. No idiot would put his money in CDs or bonds if it was so easy. Investing comes with risk, people should only invest what they're willing to lose.

Well, what if you are wrong and the world doesn't end?

You'll be sitting there 40 years from now eating beans and Alpo for lunch, when others are living well, because they planned for the future.

How is planning for future living well? Why is the person who doesn't save money wasting and enjoying? You either save your money or spend it. Save now to spend later, or vice versa.

[erowe1]

so ever since then everybody who invested in mutual funds never lost money? That's not what the news has told me in 2009. From what I heard everybody lost 50% or more on their retirement

I think it was more like 35%. And that's 35% of what they had accumulated before 2009. But they still had more than what they invested, plus 7% annual return, if they had been investing for 40 years.

[libertariantexas]

so ever since then everybody who invested in mutual funds never lost money? That's not what the news has told me in 2009. From what I heard everybody lost 50% or more on their retirement unless they were conspiracy theorists who invested in gold or placed hedge funds betting on the housing bubble.

They only lost money if they foolishly sold at the bottom. Any other "losses" were paper losses- not real losses at all.

The smart ones stayed the course, continued to invest regularly, and are now above where they were before the crash. The Dow, S&P, and even NASDAQ indexes are now well above their pre crash peak.

[libertariantexas]

How is planning for future living well? Why is the person who doesn't save money wasting and enjoying? You either save your money or spend it. Save now to spend later, or vice versa.

It's not exactly a one to one relationship. If you save and invest early, you will be able to do far more later. Those who don't plan, who live paycheck to paycheck are destined to always just scrape along.

Those who save and invest a portion of their income, in the end, will live a far better lifestyle, because after a while, their money begins working for them, rather than the other way around.

For example, if you have two co-workers making $80k per year, both age 45. One guy is the "why bother to save, there is no hope, so live for today" type. The other started saving and investing as soon as he got his first job.

The effective income of the "saver" may well, on average, be double that of his "spender" associate. By age 45, the "saver" may have less than half his income coming from his job (he is financially independent- if he loses his job, it does not matter). His spender friend is a wage slave for life who will be on the verge of losing everything if he loses his job for even a short time.

Sure, the spender may have had a few more toys (more "stuff") when he was 25 than the saver, but trust me, the freedom comes with financial independence is far better than a fancy car or a flashy watch.

[TheTexan]

I think that financial experts usually figure 7% is a good amount of growth to count on as an average over a long period of time for a portfolio that includes mutual funds, but that is still relatively low-risk.

This may have been true before the cash helicopters but most people nowadays don't have a safe 7%. If you invest wisely (ie, far far away from the dollar), you can still get that, but it requires extra work/thought.

Most people's savings (or what's left of it) will get raped in the coming collapse.

[Tpoints]

This may have been true before the cash helicopters but most people nowadays don't have a safe 7%. If you invest wisely (ie, far far away from the dollar), you can still get that, but it requires extra work/thought.

Most people's savings (or what's left of it) will get raped in the coming collapse.

exactly!

[Gumba of Liberty]

This may have been true before the cash helicopters but most people nowadays don't have a safe 7%. If you invest wisely (ie, far far away from the dollar), you can still get that, but it requires extra work/thought.

Most people's savings (or what's left of it) will get raped in the coming collapse.

Its called precious metals and you will make well over 7 percent.

[Tpoints]

Its called precious metals and you will make well over 7 percent.

Not without risk.

[Gumba of Liberty]

Not without risk.

The only risk is confiscation or physical theft. The Fed is the lender of last resort. The Feds are the spenders of last resort. It matters not if the public goes into a deep deflationary depression. Helicopter Ben will come to the rescue and the government will spend us into hyperinflation or enact price controls. Regardless, precious metals will protect purchasing power.

[Matt Collins]

Its called precious metals and you will make well over 7 percent.

No, this is bad advice.


Look at what happened to gold in the early 80's.


If you want good solid investment advice Google for Harry Browne (or search RPF) and listen to his radio show for free. Also check out the videos on www.PaulWinkler.net for a good investment scheme that is simple, stable, and barring a complete collapse will allow for steady growth.

[awake]

Interest has been destroyed by government policies. The safest method of saving and collecting interest has been a time tested secure method for wealth generation. Now, since interest rates are manipulated, most people are funneled into Wall Street for so called returns which is nothing more than inflation "gains" parading as investment gains.

Wall St. benefits when interest rates are manipulated to next to nothing: people chase the stock market looking for any reasonable gains at much higher risk.

[TheTexan]

You could also invest in gold mines. Another income generator that will retain its value.

[oyarde]

Well , everything is a crap shoot , with property , comes property tax , uncontrolled in most places if there is a structure on it, they can raise the asessment if they need more revenue for more big govt services , pensions etc.With stocks , in the end , it is just paper , value of a company , what if they no longer have value ?Farmland , very difficult to turn a profit due to high costs of fuel , seed , fertilizer and taxes, without even mentioning equipment .What do you do ? Hedge your bets , buy some land , seeds , livestock ,weapons, ammo , copper, silver, gold , stocks , bonds, have water, food ..... see how it plays out.

[jclay2]

One of the thigns that we need to remember is that most young people do not start out with large estates. Therefore, when they invest, they are putting a couple thousand to work each year. So if the stock market were to crash when you start investing, your returns are only going to be really bad for your first couple thousand in investments. The next couple years will probably work out really well for you. Most people I have seen online, who started saving right before the dot com crash did really good over the last 10 years.

Basically what I am saying is that if you don't have a large estate, you should wish for a crash now so that your future investments will be made at good low pe levels.

[klamath]

Obviously the people saying you can never lose on gold weren't around in the early 80's. A lot of people lost big time and only would of broke even a couple of years ago. In fact counting inflation they still wouldn't have broken even, 33 years later.

[Zippyjuan]

Adjusted for inflation, the peak back then would be about $2500 today. After that peak, it pretty much declined (nominally- not just adjusting for inflation) for the following 20 years. If one has only followed gold for say the last five or ten years, they have not seen this. In it's recent history, it peaked in August 2011 and has been slowly working its way back down again.


http://www.kitco.com/charts/livegold.html

[Zippyjuan]

Just showing that there is no "sure investment". If you bought the Dow Jones in the 1950's you would have made zero by the 1970's since stocks were basically flat for 20 years. I have been pretty happy with my dividend paying utility though and with paying off my mortgage.

It is possible that gold went into a bubble at the start of the financial crisis (like it did on 1980 when people were saying everybody should buy it will go to $2000 or $3000 or more!- I was hearing all of the same things back then- today is nothing special) and that now it has passed that peak and has again begun a slow decline. Or it could go up more. Nobody knows for sure.

[matt0611]

Just showing that there is no "sure investment". If you bought the Dow Jones in the 1950's you would have made zero by the 1970's since stocks were basically flat for 20 years. I have been pretty happy with my dividend paying utility though and with paying off my mortgage.

It is possible that gold went into a bubble at the start of the financial crisis (like it did on 1980 when people were saying everybody should buy it will go to $2000 or $3000 or more!- I was hearing all of the same things back then- today is nothing special) and that now it has passed that peak and has again begun a slow decline. Or it could go up more. Nobody knows for sure.

I'd agree, its wise to diversify, don't put all your money into one asset class. My investment philosophy is to have gold, stocks, bonds, cash and try not to time the market, you never know which way things are gonna go.

[Zippyjuan]

I would be extremely careful on bonds these days. They move inversely to interest rates and there is little room for interest rates to go down further which means that the more likely direction will be up which will drive down (possibly significantly) the value of bonds. And spot on for saying you cannot time the market or know where it will go in the future.

[seraphson]

Do as I say not as I do.

Save up Jimmy and you can earn that bike! ($16 Trillion national debt not including total unfunded, unfeasible liabilities, $1 Trillion national deficit, $1 Trillion college debt bubble, "Fiscal cliff", etc.)

Do as I say not as I do.

Don't fight as school Jimmy, be nice! (Century of central banking = the century of absolute, unadulterated total war, as in two world wars, Korea, Vietnam, Persian Gulf, Iraq, etc.)

Do as I say not as I do.

Work hard Jimmy and you can earn that allowance! (The percentage of low paying jobs just continues to increase. At this point,one out of every four American workers has a job that pays $10 an hour or less. If that sounds like a high figure, that is because it is. Today, the United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does. he U.S. economy is not producing nearly enough jobs for all of us at this point. For example, it was reported that 20,000 people applied for just 877 jobs at a Hyundai plant in Montgomery, Alabama earlier this year. Sadly, the official U.S. unemployment rate has been above 8 percent for 40 months in a row, and this is supposed to be “the recovery”. The number of jobs at new small businesses continues to decline. According to economist Tim Kane, the following is how the decline in the number of startup jobs per 1000 Americans breaks down by presidential administration...
Bush Sr.: 11.3 Clinton: 11.2 Bush Jr.: 10.8 Obama: 7.8)

Do as I say not as I do.

Don't lie Jimmy! (Most of the aforementioned welfare is funded through deficit spending and fiat bank credit, a lie essentially, and eventually will return to its intrinsic value.)

Do as I say not as I do.

Don't get and shoot that gun Jimmy you'll shoot your eye out! (All the big time soap box leaping naysayers have either carried or are surrounded by those that do carry but they consider, as a double standard, okay to carry [pigs and personal security]).

Do as I say not as I do.

Don't do drugs Jimmy! (According to the CDC, the percentage of Americans that say that they have taken a prescription drug within the last month has risen to almost 50 percent. According to the Wall Street Journal, more than 25 percent of all kids and teens in the United States take prescription drugs on a regular basis.)

DO AS I $#@!ING SAY, YOU $#@!ING STUPID MUNDANE AND $#@!ING NOT AS I $#@!ING DO. GOT IT?!
Good.
By the way.
Vote for me!