In several of my previous articles, there were more than a few comments made by younger investors on how to get from point A to point B towards retirement when there is a longer time horizon than those already on the brink of retirement or already there.
The question was how to invest for that longer time horizon.
I have thought about this for several days and came up with all sorts of different investment strategies with more stocks and option maneuvers than I can remember.
I filled 20 pages of note paper and finally came to the conclusion that I was acting as if I had some magic formula of investment vehicles that would make me look like a damn genius.
The bottom line is that I was going about it the wrong way and forgot what the heck I am all about, and that is to simply keep it simple, understandable, actionable, and achievable.
Folks, it is all about saving.
I pulled out my trusty old "slide rule" (for the kids out there, that was the ancient calculator back in my day) and came up with some scenarios that are easy to read and understand.
How To Save 1 Million Dollars
Let me lay out the basics:
- Goal: 1,000,000
- Average rate of return: 4.5%
- Time Horizon: 20 years and 30 years
Simple enough right? I believe I am being conservative with the rate of return, simply because none of us know what the future holds. There will be strong years and weak years in both the fixed income market and the equity market.
We can only look back at history and the 4.5% rate is well below the historical average. My suggestion would be a balanced portfolio of strong stock selections that pay dividends or offer value based on fundamentals for capital appreciation, as well as some risk stocks that you research thoroughly and feel is a risk worth taking with no more than 10% of your overall portfolio.
The next basic scenario I used was what your current savings are right now:
- ZERO in savings right now
- $100,000 in savings right now
- $200,000 in savings right now
Obviously pure guesses and everyone's situation is unique, so keep that in mind.
Since it really is all about saving, I am going to forego expenses right now and just do a laser focus on what you need to save to reach this goal. Since no matter what you spend, if you save the amounts I come up with for the period of time noted, you WILL reach this goal.
- With ZERO saved right now you will need to save $30k per year for 20 years
- With ZERO saved right now you will need to save $16k per year for 30 years
- With $100k saved right now you will need to save $23k per year for 20 years
- With $100k saved right now you will need to save $10k per year for 30 years
- With $200k saved right now you will need to save $16k per year for 20 years
- With $200k saved right now you will need to save $4k per year for 30 years
The obvious question you might have is "will I be able to retire?" I have no idea but I believe that anyone can retire and once at the brink, it is no longer just about saving, it is all about spending less than you have coming in, period.
Once that is understood, the strategies I have set forth in my regular series; "Retirement Strategies (Parts 1-17)" could be followed and I believe can help guide you in that special phase of life.
Keep saving, start saving, and save more, as soon as you can!