Stress-Free Retirement Planning
If you’re like most Americans, wondering about retirement is the biggest stressor in your life. You may spend hours asking yourself questions like: When can I retire? Will I have enough to live comfortably? How can I catch up if I didn’t start saving when I was younger?
It’s probably one of the reasons you read newsletters like this one. And it’s likely led to a bottle of Tums sitting on your office desk.
But the thing is, saving for retirement isn’t hard. And it certainly shouldn’t be stressful. If anything, it should be one of the things that makes you relax. The knowledge that you’ve got a plan and you’re making sure you’ll have money should make you breathe a sigh of relief.
Lots of people tell me they aren’t saving for retirement because they don’t have enough money to get started. But that’s entirely wrong. It doesn’t take a ton of cash to start investing. In fact, most companies don’t have any account minimums when it comes to retirement accounts like Roth IRAs.
Even $100 is enough for you to get going. So, don’t think you need $10,000 just to start saving.
Give Yourself a Monthly Gift
Once you do start an account, the most important thing you can do is keep adding more cash to it. And, again, it doesn’t have to be a lot. You don’t have to add $1,000 every time. In fact, just adding $50 a month can have an incredible impact on your savings.
The S&P 500 has averaged about 7% annual gains for the past 20 years. If you’d invested $100 back in 1997, you’d have a total gain of 287% now. That’s $386.97.
But if you’d started with that same amount and added just $50 a month, you’d be sitting on gains of 24,884%. You’d have an account worth $24,984.26. And more than half of that would be pure profit.
If you could step up your contribution every five years, say by 50%, you’d be looking at a gain of 42,522% and an account worth $42,622.12.
The power of regular contributions just can’t be beat.
Don’t Wait, Start Early
Time is your friend when you’re saving for retirement. The longer you save, the more you’ll make. That’s because of two things...
First, there’s the power of contributions getting multiplied by all those years. Second, there’s the power of compounding.
Every year you save, you’re able to get profits from the previous year’s profits. And it’ll make your account grow exponentially.
If you started with $100 and contributed just $50 a month for 40 years, you’d have invested a total of $24,000. But you’d be sitting on an account worth $121,278.51. That’s a 121,179% return and over $97,000 of pure profit.
To put that into perspective, if you waited 20 years to get started — until you had enough to invest $1,000 at the get-go — and added four times as much every month, or $200, you’d only have $102,258.87. And you’d have contributed $48,000 of your own money. So, you’re really only looking at about $53,000 of profit.
And even with all that extra cash contributed, you still wouldn’t have as much as if you’d just added $50 a month for 40 years.
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The Safe Way to Catch Up
If you’re like millions of people, you might not have started saving yet. Or you might have started but got to the party late.
Don’t worry. There’s a perfectly safe way for you to catch up. And it’s shockingly simple. It’s all about dividend growth.
You remember I said the S&P 500 has averaged 7% annual gains for the past 20 years, right? That’s factoring in the dot-com crash and the Great Recession.
But there’s a subset of stocks that’s beaten the pants off that return. During the same time period, they averaged annual gains of more than 11%.
And they’re not some fly-by-night companies that gained thousands of percent just to fizzle out in a couple of years. They’re super-solid corporations that have withstood the test of time.
During the Great Recession, the S&P dropped 40%, but these stocks only went down by 16%.
They’re called the dividend aristocrats. And they’re my favorite type of company.
To earn the coveted designation of aristocrat, a company not only must pay a dividend, but it’s also got to raise it every year for at least 20 years. And those growing dividends really add up.
By now, you should be sold on the necessity of regular contributions to your account. So, let’s stick with that $50 a month — it’s a pretty conservative figure.
Say you got started back in 1997 with that $100 we’ve been talking about. You invested it in a portfolio that tracks the S&P 500. And you kept those monthly contributions coming for 20 years.
You’d be looking at a total gain of 21,523% and an account worth $21,623.11. That’s amazing. And it’s all thanks to the power of those contributions.
But if you’d invested in a portfolio of just 10 of the dividend aristocrats and followed the same strategy, you’d have a much better looking return. Your account would be worth $32,762.97 today. That’s a total gain of 32,663%!
And it’s all thanks to those constantly growing dividends.
Anyone Can Pick Winners
Now, before you go accusing me of cherry-picking the 10 best performers of the aristocrats, I didn’t. This is a portfolio anyone could come up with. It’s well balanced — as in it’s got a stock from pretty much every industry. It’s not focused on retail or financial stocks. It’s not overloaded with tech companies. And it’s not filled with esoteric names nobody’s heard of.
All these companies are ones you know very well...
The essential point is that you don’t need a ton of cash to start saving for retirement. And you don’t need to be an expert to pick great investments.
You just need a plan, and you need to stick to it. You need to make regular contributions to your account. You need to invest in companies that grow their dividends.
And you need to be patient. It would be great if we all could get rich overnight. But chances are that’s not going to happen.
But we all can get rich. It just takes a solid strategy, a little initiative, and some time.
Most importantly, you need to get started now. Don’t wait until you’ve got a bunch of cash to invest. Start with what you’ve got and add as much as you can every month.
You’ve seen how those contributions add up and multiply your profits. And you’ve seen how much waiting to get started can cost you in the end.
If you’re looking for a little help along the way, my colleague Briton Ryle and I run a premium investing service called The Wealth Advisory. Our strategy is to invest in companies that are going to pay us income and are going to give us raises every year.
It's a proven strategy, and it’s not going to leave you reaching for the Tums every time you check your portfolio.
We want to help our readers gain financial freedom and live a comfortable retirement. And we’re so adamant that everyone has the chance that we offer a completely risk-free trial.
So, if you want some help getting started building that safe retirement portfolio, give The Wealth Advisory a try.
And if you’d prefer to go it alone, just take my advice. Get started. Keep adding. And demand growing dividends.
You’ll be a much happier and a much wealthier investor if you do.
To investing with integrity (and a plan),
P.S. I did an interesting article for our sister site, Energy and Capital, a couple of weeks ago about an entirely new type of retirement account. You can check that out here if you missed it. My colleague, Alexandra Perry, got the opportunity to have the CEO of the only company offering these accounts on her podcast, Investing After Hours, this week. Click here to give it a listen.
Follow me on Twitter @AllBeingsEqual
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