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Not long ago, a popular television game show offered folks the opportunity to answer the question, “Who wants to be a millionaire?” If you had nerve, smarts and sharp friends you could trust to answer the phone, you could, indeed, become an instant millionaire.
Retiring as a millionaire in real life is a bit different. Nerve and smarts are important, but two other components are absolutely necessary: time and discipline.
In fact, those two factors form the basis of Dave’s retirement investing advice. Here’s how to make them work together to build your million-dollar nest egg.
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Let Time Work Its Magic
As soon as you’re able, start investing 15% of your income in tax-advantaged retirement accounts like a 401(k) and/or a Roth IRA. How do you know when you’re ready to invest for retirement? First, you must be debt-free, and second, you need to have saved three to six months of expenses in an emergency fund.
The more time you have on your side, the longer compound interest can work in your favor. And just a few years can make a big difference to your bottom line. Investing just $250 a month for 25 years can give you retirement savings of almost $325,000. Stretch that out to 30 years, and your savings grow to more than $540,000!
Compound interest does most of the heavy lifting here. In this example, you invest just $15,000 more, but you earn more than $200,000 in compound growth over that extra five years.
Remember, we’re talking about $250 a month here. That’s really not a lot, is it? We know you can do much better than that!
Discipline: A One-in-a-Million Strategy
The other side of this million-dollar retirement coin is discipline. If you can’t stick to your retirement investing plan, your nest egg is doomed. And Dave’s not the only money expert who says so. Morningstar, Charles Schwab, John Hancock, Edward Jones, Standard and Poor’s . . . nearly every trusted name in the investing industry recommends long-term, disciplined, systematic investing as the best way to save for retirement.
Disciplined, systematic investing is also known as dollar-cost averaging. It means you commit to investing 15% of your income each month no matter what’s going on in the stock market. And you leave your money invested no matter how much your balance rises or falls.
The opposite of this is called market timing. This is when investors try to predict stock market swings and move their money in and out of their investments in an effort to make quick profits and avoid losses.
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If this idea sounds a little crazy to you, it is! A study published in Financial Analyst Journal showed that out of more than a million market timing possibilities, a disciplined investing approach beats market timing 99.8% of the time.
Slow and steady wins the race—count on it!
It’s Your Turn
Now that you know the not-so-secret strategy that’s created an untold number of millionaires, it's time to put this strategy to work for you. The key is focusing on the long haul so you don't get distracted by the hot investing tip of the day.
Find Out More by Talking With a Pro
You can learn more about how a long-term, disciplined investing strategy works by talking with an experienced investing professional. And, when you’re ready to launch your own investing plan, your advisor will get you started and help you stay on track year in and year out.
Dave’s investing Endorsed Local Providers (ELPs) are experienced professionals with the heart of a teacher. You can trust them for the advice you need at every stage of your retirement plan. Find your ELP today!