“Don’t say you don’t have enough time. You have exactly the same number of hours per day that were given to Helen Keller, Pasteur, Michelangelo, Mother Teresa, Leonardo da Vinci, Thomas Jefferson, and Albert Einstein.”
<em>- H. Jackson Brown</em>
Government debt is clearly on the rise. Right now, the government is borrowing almost 50 cents for every dollar it spends this year. That is certainly scary.
(Source article: <a href=”http://finance.yahoo.com/news/White-House-Budget-deficit-to-apf-15199183.html?.v=8″>http://finance.yahoo.com/news/White-House-Budget-deficit-to-apf-15199183.html?.v=8</a> )
My opinion, though, is that it’s not yet clear exactly what this will mean for our future. The stated hope in the recent stimulus packages was that, yes, there would be much higher spending–but it would be offset by the short and mid-range gains brought about as a result of that very spending.
We’ll see, on that one.
<strong>But, what can you do about it?</strong>
That’s exactly why I’m here–to be your “port in the storm”, and give you real world, actionable advice.
So, despite the chaos and future-fear, I suggest you do something positive to shift your financial future. Even if it’s just one small step…I will repeat my refrain that getting out and doing something profitable in your personal life will shift your mindset–however small the step.
In this week’s Strategy Note, I’ll put forth a basic primer on getting started with investments. And, though I’m not an investment advisor per se, we can put you in touch with somebody that can help you in this path, should you want it. Contact our office, and we’ll put you in touch with someone good.
FAIR WARNING: though basic, this week’s note requires some financial thinking. But I promise it’s a good “investment” of your time! 🙂
<strong>”Real World” Personal Strategy</strong>
<strong>Simple Steps To Start Investing (Part 1)</strong>
There isn’t a better time to invest than today.
The way to build real wealth is by living well below your means, and then investing the difference. You see, the poor “buy” things; their homes are cluttered with them. The middle class buy liabilities–like second homes and boats, and then they are obliged to make payments and upkeep on them for years.
In contrast, the rich buy investments that appreciate and pay them dividends and interest for decades.
Despite recent market turmoil, historic long-term returns still average 10% to 12%. At a 10% rate of return, your investments should double every seven years. So $100 invested today becomes $200 in 7 years, $400 in 14 years and $800 in 21 years. Even at a modest 7% rate of return, your investments should double every 10 years.
Getting started can seem daunting, like embarking on any new hobby–but, on average, this is the kind of hobby which *pays* you money rather than costing you! Every hour you spend learning about investments is an hour of free entertainment. It is an hour you are not spending money at the mall or on a more expensive pastime. And, ultimately, investing properly can be your engine of income and appreciation. It will subsidize what might otherwise be a subsistence lifestyle based solely on Social Security checks during retirement.
<strong>The first step is getting investable money together.</strong> In the beginning, the amount you save is most important. Later, after you have amassed a significant multiple of your annual spending, the amount you make on your investments will become much more significant. At that point, it’s time to seek a personal financial planner in the area. But we’ll put that aside for now, and move to the next step.
<strong>In step 2, open an account where you can do your investing.</strong> Here are some good options:
— E*Trade (<a href=”http://www.etrade.com/”>www.etrade.com</a>) is a discount firm. Account minimums are $2,000 with less than $50,000 in combined assets, and stock trades cost $12.99.
— TD Ameritrade (<a href=”http://www.tdameritrade.com/”>www.tdameritrade.com</a>) offers accounts with a $2,000 minimum and trades of $9.99 each.
— Scottrade (<a href=”http://www.scottrade.com/”>www.scottrade.com</a>) offers $7.00 per trade with a minimum of just $500.
— Charles Schwab (<a href=”http://www.schwab.com/”>www.schwab.com</a>) offers trades at $12.95 with a $1,000 minimum account size.
— Fidelity (<a href=”http://www.fidelity.com/”>www.fidelity.com</a>) charges $19.95 per trade with a $2,500 minimum.
Competition continues to force brokerage companies to adjust their charges on a regular basis, so verify the fees before signing up. Be sure to ask about any monthly inactivity charges. Avoid any account with monthly or annual fees.
Plan first on investing in a balanced portfolio and then do some “fishing”. You don’t want to be charged for the 11 months between now and your annual rebalancing. Make sure you know what the account minimums are too. They should never be more than a few thousand dollars. Although you don’t plan on transferring your account, ask what the charges are to do so, and make sure they are reasonable, typically about $75.
Each broker has special promotions that may offer free trades, cash or electronic goods. Taking the best promotion is tempting, but evaluate brokers without considering the promotion.
Setting up an account is easy, and you may be able to do it online. If you need to sign account agreements, read them carefully. Not only should you understand what you’re signing, but this is the first step in your financial education, and your goal is to gain wisdom and experience.
Half of any area of expertise is learning the vocabulary, which gives you both a shorthand for discussing finance and possibly a new a way of thinking about the world of investments. If you don’t understand something, check it out at Investopedia (<a href=”http://www.investopedia.com/”>www.investopedia.com</a>) or call your broker’s toll-free number.
I’ll discuss steps 3 and beyond next week. Getting started can be intimidating, but these simple steps will help you through your first few years of investing!
<em>To more of your money in your wallet!</em>