Management is the Key to a Peaceful Financial Future

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Taking your hard earned money and sending it into the relatively unreliable world of banking demands courage. However the trick is to remember that the money under your mattress will likely be a lot less than your investments over time.

I’ve want to share the following with friends and family that are hoping for a peaceful financial future but not preparing. So this is for those of you who may just be starting to manage your money. Full Disclosure: This may not be priceless.

I will touch on timing the market, investing in indexes, the power of compounding interest and need for research.

Finances are like plants in a garden that you need to take care of if you want to reap the benefits. A typical garden requires
that you:

• Dig – research, research and research
• Plant – Invest based on your research, this will ideally include your personal knowledge of industries, if you see trends or fads coming, great, capitalize on them)
• Water – keep adding to the accounts as often as possible
• Pruning – get rid of the things that are not growing

These days investing money online is like ordering a pizza online. It’s easy! And companies like Vanguard have great customer service reps who will share their technical assistance.

I’ve read that those who let ‘professionals’ invest for them will lose about $100k over their lifetime.  And the professionals may not be able to do much better than you can. In fact, research shows that from 2001 to 2016, more than 90% of active fund managers underperformed their benchmark index. 

My “Investing 101” tips:

1. Time in the market beats timing the market!

You never know when the dips are coming but the market generally returns 5 to 7% every year. Research well and jump in!

2. Indexes

Once you start researching you will begin to notice that many of the experts tend to point you in the same direction. Index funds. And Vanguard has some of the lowest fees.

An index fund is a mutual fund whose holdings match or track a particular market index. For example Vanguard’s VTI is vanguard Total Stock Market ETF and this fund tracks the performance of the overall stock market. The fund, with 91 billion dollars in it, includes almost 3,500 stocks.

Index funds don’t try to beat the market, or earn higher returns compared with market averages. Instead, these funds try to be the market — buying stocks of every firm listed on an index to mirror the performance of the index as a whole.

Index funds can help balance the risk in an investor’s portfolio, as market swings tend to be less volatile across an index compared with individual stocks.

3. Compounding Interest

Warren Buffett shares one of the key ingredients to his investing success all the time… it’s compound interest! The Chairman of Berkshire Hathaway Chairman will also point out accumulated nearly 90% of his wealth after the age of 65. So as you see, this is a long term strategy but a powerful one!

Compound interest can be thought of as interest calculated on the initial principal and on the accumulated interest of previous periods. Think of it as earning interest on your interest which can cause wealth to rapidly snowball. Compound interest will make a deposit grow at a faster rate than simple interest, which is interest calculated only on the principal amount. It’s because of this that your wealth can grow exponentially through compound interest, and why the idea of compounding returns is like putting your money to work for you.

Bill Ackman, the billionaire chairman of Pershing Square Capital Management had an idea to make every child born in the U.S. a million dollars by the time they retire! It’s not a bad idea! Each child born in the U.S. would receive $6,750 in a government-funded basket of index funds that could only be tapped at retirement. Assuming 8% returns over 65 years from birth to retirement, that total would ultimately exceed $1 million

Warren Buffett is known for this extreme example but it makes a great point. When he was a young man, Mr. Buffett often asked, “Do I really want to spend $300,000 for this haircut?” He was thinking about the vast amount of money he wouldn’t have decades in the future because of the small outlay he might make in the present.

“Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.”

Albert Einstein

4. Spend 5 – 10 mins a day researching. 

You’ll pick up a ton of knowledge over time. Ready the headlines on sites like MarketWatch  or The Wall Street Journal or the Financial Times. If you prefer hearing over reading watch the financial newscasts or find a channel on YouTube. You will intuitively find your way. The more you know the more you will be confident in your decisions and hopefully grow your money.

Lindsay, my much better half has a blog SpendRich.com that helps with daily hacks, ideas, discounts and ways to save money everyday. Tell her ‘BraverGuide” sent you!

BONUS ROUND:

Here are a few books I recommend:

(As an Amazon Affiliate, I earn from qualified purchases.)

Another helpful hint, I manage my money with Personal Capital. They offer a free online and mobile personal finance and investment management app. It’s similar to Mint and may be the most widely-known personal finance and budgeting app. After testing Personal Capital for a few months, here’s a review of my experience. Here’s a review and more details about it www.moneyunder30.com/personal-capital-review

#AD Personal Capital is a free app (used by over 2+ million people) Install the app and connect your accounts. We’ll both get $20.

Visit other BraverGuide posts on >> Personal Growth

Please share your Investing 101 tips below! Thanks.