Having recently achieved my curmudgeon badge, I thought I’d pass on some retirement advice earned from a lifetime of making every mistake in the book. Oh what they don’t teach you in school… The first rule is to not have any vices. Vices is another word for taking your money and lighting it on fire. Poof! It would be less damaging to the body to get rid of your money that way as opposed to drinking, smoking or drugs. Another expensive addiction is gambling or being a shopaholic, don’t do that.
If you don’t throw your money away, it can do wonderful things for you. Especially when you are 24. I wouldn’t begin to expect to reach the 18 – 23 year old. So let’s start at age 24. As Charlie Brown’s Lucy would say, “All I really want is real-estate!” You would be surprised what little difference there is between a rent payment and a house payment. People who want to build wealth buy a home (s). Yes the agent and the bank are going to take an insultingly large cut, but its still better than renting.
You want to buy some silver or gold when you’re young? Stash it away in a safe deposit box? Go for it, I wouldn’t kill yourself though. Precious metals are a good place to get ripped off. Keep it simple. When I was a young man in the late 70’s there were incredible savings vehicles in Certificates of Deposit and Series EE Savings Bonds. You could get 10% with a CD! 6% with a EE Bond! 100% safe! It was incredible! You can only begin to touch it nowadays (4% – 6%) if you have $10,000 to put down on certain Treasuries, Bonds and CDs, out of range for most people. Hell, a bank savings account back then would pay 3.5%!
The Federal Reserve had to take the prime rate down to 0% in the mid-90’s or they would have blown the roof off the national debt. The only reason you see interest rates start to tick up now is they want to put the kibosh on Trump’s roaring economy. No-risk 2% – 3% you can earn now only with large sums of money still has you losing to inflation. That leaves you with the stock market.
The stock market is nothing more than gambling. Its a crappy situation but you got to deal with the hand they give you. Even an employer like Starbucks, Best Buy or Walmart has some sort of 401K or SEP with matching funds I would imagine. The first rule is to put in the amount required to nab those matching funds, a guaranteed doubling of your money. If you don’t have that or if you have some extra money afterwards, there are Vanguard ETF’s (exchange traded funds) that you can get in a ROTH IRA! (ROTH being the better choice 99% of the time over a Traditional IRA.)
In the 70’s mutual funds were few and far between. Actively managed funds that couldn’t beat the market on their best day. Often with astronomical front end ‘loads’ and fees. Today there are very efficient index mutual funds with very low expense ratios of 1%. But guess what? Vanguard came up with ETFs with expense ratios of .05% ! Incredible, that makes a 7% return on a mutual fund the equivalent of an 8% return on an ETF! They have various charts where they show over 30 years that savings in expense ratios amounts to numbers like $30,000 dollars.
ETFs trade in real time like a stock so you’re not waiting for the overnight crapshoot to see at what price you purchased a mutual fund at. And with Vanguard, there are ZERO commissions or fees on trades of Vanguard ETFs! Its hard to believe they can do that when the other brokerage houses aren’t even close. No per trade commissions and the lowest expense ratio in the business with the pioneer in index funds. Can’t beat it. And if this wasn’t enough, you can get into it for $50 dollars a share in the Vanguard ETFs! Unbelievable!
Historically with mutual funds you had minimum investments of $2,500 to $10,000 dollars, very difficult for a lot of people. Now with a Vanguard ETF in a ROTH IRA you can get into it for $50 bucks a share with no tax consequences ever! Incredible. Even the most careless 24 year old can get started in this. That money working for him for 40 years would work out to exactly… well a lot of money!
The last key to investing is the classic “buy low, sell high”. Right now on Labor Day 2018 most of the market is at its 52 week highs. There are only a couple of funds a sane person would buy right now if he were just getting in. If he had been buying the dips all along, it would be fine to buy the peaks now. That’s the key: incremental investing over time. As long as you buy the lows, it will work out to buy the highs. Below are a ‘Top 10’ list of Vanguard ETFs by their ticker symbol that really stand out. Some with 1 year earnings of 30%, 35% and even 40%! – Jim Roach