Warren Buffet, possibly the most savvy investor in history, makes more sense than just about any other investor I have heard speak. He looks for companies that are under priced that are poised to go up in value in the long term. He said that you should be afraid to invest when people are greedy, and you should be greedy when people are afraid.
That said, it is time to start buying. The markets are going crazy. No one knows what will happen in the short term. In the long run, however, stocks always go up. Time to open your investment account.
The first investment account you need is a retirement account. This can be in one of several forms. The standard for employees of large companies is a 401(k), or a 403(b) for non-profits. This account is a pre-tax investment, meaning that you do not pay taxes on the money that goes it. Most companies match your investment (mine matches 100% of up to 3% of my pay). I invest the full 3%, which is equal to 6% of my pay. In this type of investment, you probably have a handful (about 10) of investment fund options. I am in a “destination” fund. This is a fund with volatility tied to my retirement year. As I am about 30-45 years from retirement, I have a lot of volatility. As you get closer to retirement, you want less volatility.
Retirement accounts can also be an IRA, or Individual Retirement Account. The traditional IRA is a pre-tax investment. A Roth IRA is an after-tax investment. In 401k, 403b, and traditional IRA investments, you pay taxes on withdrawals. In a Roth IRA, withdrawals (capital gains) are TAX FREE! If you are not going to retire for about 7 years or more, this is a great investment choice.
The other investment account you should have is one that you manage for yourself. I have a 401(k), a Roth 401(k), which is a Roth IRA managed through my 401(k) company, and will soon be opening a personal investment account. I will talk about that process in a future post. Don’t miss it, subscribe.
When making investments for your future, you have to make it a priority. Set a goal. Set somewhere to start. I started with only that 3% (pre-tax) which turned into 6% with the company match. Next I added 2% more (to make 8% total) in company stock at a discount. I then started my Roth (2 weeks ago) with another 2%. My goal was to invest 10% of my pay into retirement. I am there. If it is a priority for me and I am in my twenties, it should be a priority for everyone.
My goal after completing my MBA is to raise this number to 15%. Set a goal as a percentage, not as a total amount. A percentage means that with every raise, your retirement savings will grow. Don’t think about this as money spent, think about it as paying yourself for your future.
I want to retire at 40. To me retire doesn’t mean stop working, it means stop having to work. At 50 I want to be a recreational entrepreneur. To do it, I need money in the bank. To do that, I am saving today. I have a 25 year retirement goal, I will keep you all up to date as I go using the Net Worth widget on the top right. Click on it to see the detail. It is small now, but I am persistent.
If you invest like Warren Buffet today, you can relax like Jimmy Buffet in the future.