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Couldn't argue with you unless you were looking to control volatility.
Many folks want to keep the swings within a range they are comfortable with.
To high of an equity position makes them lose sleep at night when things fall.
Because most of the time quality bonds and treasuries rise when markets plunge it takes alot less money in bonds than cash to temper the swings.
One would have to pull alot more money out of equities if they used cash as opposed to used bonds to try to hold to a certain amount of volatility.
As an example in 2008-2009 equities lunged 45% but treasury bonds rose 40%.
If you were trying to avoid owning bonds by using cash instruments you would have needed a ton of cash to try to offset any of that plunge and even then you may not be in your comfort range.
Many found out their pucker factors were far less than they assumed and they eventually bailed ,ran and lost money..
Even at these levels bonds can do alot of good in a portfolio where volatility and pucker factor are a factor. they stand the best chances of flying fighter cover in a downturn of equities.
not perfect, but about as good as you can get without futures or option hedging.
If my stocks went down, the first thing I would do is to buy more of them!
if your stocks went down you would buy more provided they already didn't fall and you already had bought more and are fully invested at this point. otherwise all you can do is watch it plunge from there.
actually here is a secreat, sssshhhhhhhhhh.
buy low sell high has lost more money for investors then any other mantra. it sounds great right? but in practice it fails more than pans out and becomes buy low and sell lower.
what should it be? buy high ,sell higher.
why?
because the trend is your friend and an object in motion stays in motion until it hits something.
look at 2008-2009 after the market fell 2000 points. well to many that was low, but the plunging market and its momentum had other ideas as it plunged 4000 more points taking the money of all those investors who bailed out at some point . once you are fully invested and the well is dry there is no more benefit.
when markets are up trending they will stay up trending until they are not any more.
you stand excellent odds of not being the guy who decided to buy on the last day before the trend was done.
on the other hand trying to predict a low or even close to a low is a dangerous game. when momentum is down its down you go. then it becomes you vs your own pucker factor, which rarely turns out to be as high as most think it is once real money is on the firing line. the more money you have at risk the less that pucker factor becomes.
so for best results forget buy low and sell high, most times that results in buy low and sell lower as the momentum continues down.
winners buy high and sell higher.
Last edited by mathjak107; 12-24-2013 at 12:15 PM..
Forget 7 digits. Aim for something more tangible and realistic. 1/2 million is the key.
What was that company with this ad some years ago:
"The first $500,000 is the toughest"
Something to that effect. They only took clients in their PW practice that had over .5 million net worth. That's because the power of compounding return along with every single historic stock market benchmark makes it a statistical slam dunk that you'll repeat much, much sooner. The more you've got, the easier you can grow it.
I'll hit a million by 33 or so with conservative projections for the next 3 years. Took a lot since I started with -50,000 out of college. But it's a freight train now, hard to stop since I've topped the 1/2 million mark and I save copious amounts per year.
More specific to the OP's questions, yeah, I always knew I'd get here. Always. I went to a prestigious university...it was always a matter of time for me. There was never, ever a doubt. But I'm an incredibly driven person, so not sure my attitude is different on any number of subjects.
As for how, especially when you start with absolutely nothing, the answer is easy. Control what you can, which isn't the macro stock market or investment options. It's the amount you save. That's the great equalizer. Save what you can while still living a comfortable life. It's hard to emphasize that enough. Take care of yourself first. And then let chance do it's magic on your money.
It's always a tricky thing. Most people emphasize getting more income but then as soon as they get it, they go out and spend it. But it's true, if you earn a low income, you probably really do need to earn more. But the point is...you must save something, and you must save regularly, even if it is a small amount. The habit is very important.
I think once you start hitting an average income in the $40,000 range, it becomes possible to hit $1M if you are a diligent saver and start young. The problem is, most people don't start young and are not diligent savers. Not having kids also helps, although I know plenty of people who don't have kids who earned decent incomes but who are broke...so that is no guarantee.
I am making just under $24k a year. At this income level, just keeping afloat is a challenge. I can barely pay basic bills, let alone invest anything. I need a lot more income to simply pay off some debt. If I were able to break into the $40k-$50k range like where I was last year, I could start investing again and paying off debt. I can't even imagine the mess I'd be in with kids.
Yes, lifestyles increase as income goes up, but it doesn't go up linearly. I might buy a lot more at Whole Foods if I was back in the $40k range, but my eating habits wouldn't change greatly from $40k to $80k. That extra income on the top side left over after subsistence is the investment money.
1. Savings and risk averse investments. (The day of the CD is pretty much gone)
2. Kill off your wants. Drive used vehicles.
3. I live in a 140k house; value down from 165,000. Could qualify for much more house. Not going to do it.
4 Married woman who is financially conservative.
5. Simple vacations.
6. Inherited some. Both of us. Invested it. No spending sprees.
7. Good job with great pension plus SS now.
8. Knowing when to say ENOUGH on everything. No 300 dollar athletic shoes.
9. Fear debt. Only slightly less fear of debt than cancer.
10. Kids got the necessities; few "gimmes".
11. Wife never worked outside home so no daycare stuff, no wardrobe, no daily lunches out, ate in mostly. Limited overhead with household.
12. Thankfully, no financial crushing health issues which are unpredictable and can change anyone's status. We are neither smokers or drinkers both of which are health busters and very expensive.
I could list others but I think my thrust is obvious. I don't for a moment think anyone can do it nor am I anyone special. Things fell into place for me over the years. No special talents. Got help from others along my way in my career. I do not think many make it alone. It might seem that way, but typically I think, someone helped either through mentoring, opening a door or some act which might seem a little thing but ultimately meant a lot.
Nor do I think that economic status is a mark of good character or poor character. Someone struggling is not a loser anymore than someone with cash is a winner. I've known many a person on the lower end of the socio-economic scale I'd rather share a desert island with than many well-to-do types.
But at the end of the day, money/wealth counts towards quality of life and it ought to be taken seriously.
Correct me if I am wrong but unless we inherited a boat load didn't we all start off with nothing? I had a few thousand in the bank when I graduated from college back in the day. But that was still nothing and I needed that to help get settled etc etc etc. It is really all part of a life plan that begins in high school and continues with education, job and career decisions. Where to work and live etc. Go to a high COLA area and your chances are better because you will get paid more. Go to a low COLA area and your chances will decrease as you will get paid less. Want to really do it right? Work in a high COLA area earn and save more and then try a nice lower COLA area and increase your purchasing power with the same amount of money. As others have said it is the formula. 15% saved on a higher income is more than 15% saved on a lower income. Transplanting in retirement isn't just about purchasing power but it can also enable you to continue if not increase savings in retirement.
My father was an investor, he never earned a big salary, yet when he died he had accumulated a great deal of money. One of the things he drummed in my head was "Pay yourself first". I followed his advise, when the 401K program was established in the late 1970's, I started paying myself first, not much maybe $100 per month, every time I got a raise I increased my contribution.
I also jumped into the IRA program when it was announced maybe 1986, again started slow and looked at my contributions as a bill that had to be paid every month.
Today, I am retired and I have not taken out a dime of either investment and don't plan to until I have to at 70 1/2. Yes, I pay attention to my investments, having rolled both over several times.
His advise worked for him and me both, I am grateful to him for helping me to understand this investment strategy. Yes, I had to budget my money, plan and avoid impulse purchases, but that was a small price to pay for the peace of mind I currently enjoy in my retirement years.
To anyone who once had nothing and is now worth 7 or 8 figures:
1. When you had nothing, did it ever seem possible to you to one day have 7 or eight figures?
2. How does it feel psychologically and emotionally to have 7 or eight figures?
3. How long did it take?
4. Any tips on how to achieve such a feat?
Thanks
1. When I had nothing, obtaining a job with a career path to $50,000 in 4-5 years seemed like a worthy goal lol. It wasn't so much that I thought 7 figures was impossible, I just didn't think about it.
2. Today, I have low 7 figures which if I live long enough could conceivably grow to a pretty substantial amount. I feel pretty much the way I always have. The feeling of security is nice. Not having stress over expenses is nice. There is a feeling of contentment that your effort has paid off. I also feel gratitude and a sense of being blessed. Theres not really a down side for me.
3. about 25 years
4. Aim for the highest salary you can. Learn what it takes to achieve it.
Live within your means. Delayed gratification. Derive your self esteem/self worth from real things and relationships not keeping up with the Jones. If you have two incomes learn to live on one.
Save. Whatever you can each paycheck preferably through payroll deposit and/or a goal you have for the year. Just have a goal prods you to save. Save bonuses, raises, etc. Shoot for saving 30% and even 50% when your salary reaches a certain point.
Maximize tax deferred savings ...IRA's/401K
Diversify your assets. Research/learn whats appropriate for your age or situation. Set aside part of your savings to take risks. Make them calculated risks.
Understand the value of dollar cost averaging. Don't try to time the market.
Avoid credit card debt like the plague. If you have it get rid of it as soon as possible.
Talk to people who you know are financially successful, research financial info, know when you need professional guidance.
Expect money to come your way and it may. In other words, find balance. Holding on too tightly to pennies is as detrimental as spending everything you have. Know what your extravagances are and offset them by being stingy in other areas. For example, we eat out a lot, but my husband is always calling someone to get a fee reduced, lower the cable bill, reduce the insurance etc.
Marry well...someone who has the same ambition, earning power and financial values that you have.
If you have children, plan for their educations as soon as they are born. The best plan of course being free through scholarships.
Don't expect money to make you happy. Money just gives you more options. You still have to make the most of the options you have to be happy.
I know some people they work in flea market. they don't do illegal stuff but recently bought high end SUV's on cash. I have seen them grow in period of less than 10 years.
I guess its luck and hard work together.
neither alone can get you in 7 figures.
But what is luck really? One definition that I have heard over the years: Luck is when preperation meets opportunity. If you think about it, all the opportunities in the world can come your way. If you are not prepaired to see them, realize what they are, or have the knowledge or resources to jump on them then those opportunities are not yours to have.
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