There are thousands of investment choices available to us today! Assume you are making $60,000 to $100,0000 per year and you’re thinking, “I’ve got to invest, or I need to invest – but where, with all these choices”!? Well, after speaking to many of you over the years, I can realistically make two observations about how investment decision- making generally is conducted:
- I should invest in a 401(k) or IRA because, “it seems to be the right thing to do” and “that’s what my colleagues are doing.”
- I invest money without systematic consideration for the amount of money I have to invest and the time that I will have the money.
- I don’t invest because I don’t have the money.
None of these three thought processes works and that’s because people who think this way about investing haven’t got a plan.
In the absence of a holistic money management plan you will spend money you cannot afford.
The general population is often very naive about available options. The choices may seem to be so many that most people don’t know where to start. Therefore they tend to default to following the crowd. A primary example of this is investing in an employer’s 401(k) plan because it is offered and it seems that is what others are doing. A matching program isn’t all bad, but what is bad is that most people don’t usually consider, or know how to consider, the choices within that plan that they are forced to make when they decide to participate in such a program. A 401(k) is based on stock market buying and selling, a very complex game that the slick wheelers and dealers on Wall Street work at each day in order to make a profit. How often are you “working” your 401(k) plan? I will venture to say that the last time you really took a good look at the numbers was when you signed up for it. You let the fund manager handle it, right? But how well is this person handling your money and how much do you have to pay she or he to do so? Did you even know you had to pay a fund manager?
Employees, if they know anything about their 401(k) plan, know the percentage amount of their check they are contributing and the amount their employer matches. What they don’t know and should want to know is:
- What the vesting period is (the amount of time the plan requires you to be employed to have actual ownership of the employer’s contribution).
- Where within the plan the money is invested.
- What rights/obligations the employee should take to see that the funds invested are producing a sufficient return over time.
- The fees built in to the plan for fund management that suck up much of the gain.
In other words, the employee should become a student of the plan and the individual stocks invested in (See Money Mastery Principle 5: Know the Rules). You have the responsibility for your own success in the plan. The employer does not.
As a rule of thumb the Money Mastery® System recommends that the employee contribute enough to maximize the employer’s contribution. In other words if the employer matches a dollar of your contribution with 50 cents, up to a maximum of 6 percent of your gross income, then it would be well if you maximized the employer contribution – but no more. In this example you are getting a 50 percent return on your money or in other words, investments could go down 50 percent and you would not lose any of your money. Your risk of loss is minimized. Of course if the stock goes up and stays up, that is the best.
The stock market average yield over many years is a modest 3.8 percent, unless you have the time and commitment required to learn how to invest in the market and play the games of the market and be
prepared to take greater risks in the market… then you will earn higher returns. But there is a price to be paid to earn these higher returns. For the average consumer, this just isn’t something they have the time or inclination to do, so they sit back and get those modest 3.8 percent returns and hope they can build a retirement on that.
You should know that you have other choices. From a macro look at your choices, here are the top five:
- Invest in the stock market, i.e. 401(k).
- Invest in real estate.
- Participate in a cash-value life insurance policy.
- Invest in your own business.
- Invest in commodities, i.e. gold, silver, platinum, etc.
Within each, there exists myriad of choices, the thought of which makes the whole effort to invest properly mind boggling. It may be that you simply cannot sort this all out by yourself. You need perspective and options from those that are not biased to any one form of investing, but know the options and perspectives of each as they apply to you, individually.
To know for yourself the investing perspective peculiar to you, is empowering, comforting and increases your wealth over time. The most important action you should take when deciding on an investment plan is to talk with those that have the knowledge and principle-based experience to help you.
With a plan, anyone can invest regardless of income. If you want to know more about an investment strategy tailored to you, contact Alan 801-292-1099, firstname.lastname@example.org.