As someone younger than 50 who started with a small sum and achieved financial independence solely through allocating capital, I am astounded by the lack of financial literacy in our country.
Until recently, I blamed it on our educational system.
Let’s face it: Our high schools require you to study science, for example, although most students in the real world remember, or use, a small fraction of what they are taught.
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There is no requirement that students learn the two most-important skills that every American adult will need at some point in their life, regardless of their race, creed, what city they live in or what profession they choose: budgeting and investing your savings in safe, high-yield investments.
Many people will argue that budgeting is basically common sense and that you just need to save more than you spend. Anyone with little or no education can understand that simple concept.
Anyone who works 40 years and puts $5,000 in an Individual Retirement account and their investment paid 6 percent would have $773,810 at retirement and would be earning about $50,000 per year annually on their money. They wouldn’t outlive their money if they lived prudently.
Until two years ago, 6 percent was usually a no-risk, money market account rate that most conservative investors could expect.
However, if today’s 2 percent rates continue in the future, like many including myself believe, the same person will only have $302,010 and would be only be earning about $6,000 dollars annually on their money, which could eventually deplete their retirement nest egg.
However, if you saved the $5,000 and compounded your money in safe, high-yield investments that earn 12 percent annually, your total would be double the 6 percent, right?
In fact, because of the miracle of compound interest and the reinvestment of dividends, your estate would be worth $3,835,455 ($3.8 million) and would be earning you more than $450,000 annually without touching your principal.
is preparing for retirement, isn’t it?
Just imagine if you were able to save more than that each year or you could compound your money at even a higher rate?
Now do you understand why it is crucial to learn how to compound your money at higher rates?
Next week I will explain in greater detail how to achieve that.
As many of you know, I write a newsletter, and its safe high-yield investments have so far compounded an investor’s money at a much higher rate than 12 percent annually.
I also started an interactive investing school for those who wanted more help in learning this crucial skill.
What have I found out?
A disproportionate amount of members who have subscribed are older than 60 and have already reached financial independence.
That’s right — the people who need the most guidance don’t register.
Folks, your children and grandchildren don’t possess your life experiences and wisdom to learn this on their own.
They will spend thousands of hours in classes and thousands of dollars on education, which won’t teach them this crucial skill set.
Encourage your children, grandchildren, nephews and nieces to develop an interest in allocating capital.
Better yet, find a newsletter or investing school for them and perhaps maybe surprise them with a subscription or enrollment.
Next week, we will review what to look for when deciding on how to choose the one that suits your individual personality best.
About the Author: Bill Spetrino
Bill Spetrino is a member of the Moneynews Financial Brain Trust. Click Here
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