- You may be more prepared for retirement than you think.Say, you have only $75,000 socked away for retirement, and you are already 45. You have a lot more saving and investing to do in order to build a comfortable retirement. But, you are still above average. Fifty-three percent of American workers have saved less than $25,000 for retirement (excluding the value of their home), and 35% have less than $1,000 saved.
- You can probably amass much more money than you think. If you have 30 years until retirement and you can sock away $8,000 per year that grows by an annual average of 8%, you can accumulate close to $1 million. You have only 20 years until retirement and can sock away $10,000 a year growing at 8% annually, you will end up with close to $500,000.
- It is kind of easy to outperform most managed stock mutual funds. An inexpensive, broad market index fund is likely to outperform most managed stock mutual funds. For example, the S&P 500 outperformed about 80% of large cap stock funds over the decade concluding at the end of June, 2015.
- Dividends can turbocharge your investing. A study of Russell 3000 companies dating back to 1992 found dividend payers returned about four percentage points more per year, than the average non-payers, when weighted equally. Between 1927 and the end of 2012, reinvested dividend income made up 42% of large cap returns, 36% of mid cap returns and 31% of small cap stock returns.
- Day trading or excessively active trading can wreck your returns. The most active traders reaped the lowest returns. Indeed, between 1992 and 2006, 80% of active traders lost money, and only 1% of them could be called predictably profitable.
- Inflation can cut your purchasing power in half. Over the long haul, inflation has averaged about 3% annually. That number may not seem bad, but over 20 years it is enough to give $100,000 the purchasing power of just $54,000.
- Do not count on your home as an investment. Think of your home as a comfortable place to live, but not necessarily a great investment. A Nobel-prize-winning economist’s data suggest that housing prices have grown at a compound annual rate of just 0.3% over the past century (inflation-adjusted), while S&P 500 has averaged roughly 6.5%.
- Stocks rose 1,100-fold over the last 70 years. Over the last 70 years, the S&P 500 advanced 1,100-fold, which is enough to turn a single modest $1,000 investment into more than a million dollars. Consider that statement in light of the many double-digit market crashes, recessions, and even the Great Depression. The lesson: over the long haul, stock markets tend to rise, not just in a straight line.
- You can slash your tax rate nearly in half by being a long-term investor. The capital gains rate on short term investments (those held a year or less) is the same as your income tax, which is 25% for most people and 28% for higher earners. On long-term capital gains, though (from assets held for more than a year), most people will face a tax hit of just 15%.
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