Gen-Y (Early 1980’s to Early 2000’s)
You have a lot of time to accumulate assets for retirement. But, you have to make good decisions in the short-run to benefit in the long-run. And every year that you procrastinate is a year that is gone forever.
You short-term goal should be to build a critical mass of assets as quickly as possible to obtain increased impact from performance:
- A 10% return on $10,000 is $1,000
- A 10% return on $100,000 is $10,000
The development of assets that are independent of your employer is also a good idea. You do not want to be 100% dependent on a company retriement plan. There are certain facts of life that you should not ignore:
- The #1 way companies cut costs is lay-offs
- Companies continue to outsource jobs to China
- Globaliztion is an accelerating fact of life
- Location no longer matters for most jobs
Saving money for your future use takes discipline. Economists like to describe America as a nation of consumers and they are right. But, you should learn from your predecessors' low savings rates. A healthy savings rate is the only way you can start building a critical mass of assets for your retirement years.
If boomers live into their 90's and Gen-xers live to a hundred, how long will you live? Medical science and healthier life styles will keep driving this number up. Depending on your retirement age, in the future, you will spend more time retired than you did working.
Medical science also has another impact. It can keep you alive for years in an assisted living facility. If better quality facilities cost $5,000 per month in 2014, what will they cost in 2040? For this reason alone you can never have too much money for your retirement years.
You have 30 to 40 years until you retire. One of your biggest risks is procratstination. You will start saving when your children are older or out of college. Or, your priorities are the big primary residence and a second home in the mountains. You can never get the lost years back. You should start retirement planning and saving at age 30 and have the personal discipline to stick to it.
Wall Street prefers face-to-face relationships with you. Face-to-face facilitates Wall Street's sophisticated sales tactics. The tactics don't work as well over the telephone and Internet. This does not mean you have reduced exposure to sales and investment scams. The scams will also evolve. Buyer beware!
After you achieve critical asset mass, performance is your number one source of new assets. In fact, it may have 3-5 times the impact of savings. A critical question is who produces the performance? Do you make your own investment decisions? Do you invest in a mutual fund family? Do you hire a financial advisor to help you? Do you use one of the new online investment services?
If you don't take risk when you are young when would you take risk? Investors in their 30's and 40's should be heavily invested in the stock market. Yes, stocks are riskier than bonds, but stocks also outperform bonds over longer time periods, just not every year. The relationship between stock, bond, and money market performance is based on Capital Market Theory. You can afford to take substantial risk because you have a lot of time to recover from bad years.
You get what you pay for. There are no free lunches when you invest your assets in the securities markets. And, every dollar of expense is one less dollar you have available for reinvestment and your future use. You should watch investment expenses very closely. This expense could add-up to hundreds of thousands of dollars during your life time.
It takes a lot of discipline to start saving for retirement when you are young. But, the sooner you start saving, the more money you will have for your future use. It could be a lot more money - hundreds of thousands of additional dollars that will fund a comfortable, secure standard of living.