A Positive Spin On Your 401K

A Positive Spin On Your 401K

I had a recent conversation regarding the fact that many people aren't taking advantage of their employers 401K program.  This is very shocking to me as it's one of the easiest ways to add additional money to your retirement.  I decided to go back and update the original article I posted back in 2010.  The numbers are updated to reflect the current investing landscape.  Enjoy!

Investing in your 401K is essential.  Everyone should be taking advantage of their 401K program at work. And I mean everyone!  If you have a 401K program you already know that it has many great advantages.

1. Tax deferred.  You don't have to pay taxes on your contributions until you retire.

2. 401K reduces your taxable income.  This could potentially put you in a lower tax bracket. 

3. Employer Match.  Many employers offer a match to your contribution.  An example would be .50 on every $1.00 you contribute up to 6% of your annual salary. (Plans may vary)

4. 401K money comes right out of your check.  You never see the money and its a great way to force yourself to invest for your future.

Those 4 examples are reasons to take advantage of your 401K.  I would like to add another advantage that is straight up mind blowing! (The only catch is your employer must match your contributions)

Investing in your 401K is essentially a hidden raise from your employer.  Everyone wants a raise.  Right?  Here is a perfect opportunity for a raise and you don't even have to be a standout employee at your work.  I will explain. Get ready!

 Example:

 -Your current salary is $48,000 and your employer matches .50 for every $1.00 up to 6% of your annual salary. 

 - 6% of your salary is $2,880.  That means your employer will contribute up to $1,440 a year. 

 -Add that $1,440 to your $48,000 and you just received a 3% raise.  That's the easiest 3% you will ever earn.

You may argue that you are decreasing your annual income by $2,880 since that is what you must contribute to take advantage of the match from your employer.  You are correct!  The raise is being deposited into your retirement account.  Your technically not losing any money.  You are moving your money to an account that shouldn’t be used until retirement.  You are getting a raise that has delayed gratification written all over it! Now check out these numbers!  The numbers below provide the evidence behind a once in a lifetime raise.  A phenomenal deal by your employer that you can't refuse!

-Next we will take the $1,440 that your employer matched from your $2,880 contribution and invest it in the stock market for 30 yrs. (You could have multiple employers over the 30 yrs)

-I like to use a 9% return as this is roughly what the S&P 500 has returned historically.

-Take the $1,440 contributed for 30 yrs at a 9% rate of return and you get $213,948.31.  (Total contribution of $43,200 from your employer.) 

-Now take the $213,948.31 and divide by 30.  You get roughly $7,131.

Your employer just gave you a $7,131 raise over 30 years.  Add that to your $48,000 annual salary and your new salary is $55,131.  I call this the delayed gratification raise! I'll take that raise all day long!

In the end your 3% delayed raise from your employer turned out to be a 14.85% raise

$7,131/$48,000 = .1485 or 14.85% My suggestion to all is to go into work Monday morning and give yourself a 14.85% delayed gratification raise.  You deserve it! 

I'm not done just yet.  While your employer was contributing $1,440 you were also putting in $2,880 ($7.89 a day) a year.

That means over 30 yrs your total contributions would be $4,320 a year.  Invest that number at 9% for 30 yrs. and you will have accumulated roughly $641,844.94! It's that simple.

That’s a nice chunk of change for taking advantage of an employer’s match.  Along the path of 30 years I would expect you would be adding value to your employer in return for additional compensation.  That would change the math and the $641,844.94 would be the low end of the range for retirement.  With compound interest on your side there is great potential for higher returns. 

A 9% return seems conservative compared to the recent returns in the market, but I also want everyone to have a realistic retirement.  It all depends on what window of history you wish to choose to get your information.  Over the past 5 years the S&P 500 has returned roughly 14.50%.  If you used the same math as above, you will have accumulated $1,947,805.58.  I don’t anticipate those returns to continue, but as you can see it’s a substantially different outcome.  The point is to start early and invest for your future.  Eventually your money will be working for you!

Happy Investing!

Clay-$$$

Questions-feel free to send an email to wheatleycsmk@gmail.com

I'm not a licensed financial advisor. All recommendations is strictly my personal opinion and the information is intended for learning purposes only. Invest at your own risk!

The Big Picture Of Investing

Over the past few weeks I've been thinking about investing as a whole.  Why do people invest?  Why don't people invest? What's the best way to invest? What's the best company to invest in?  And the list goes on with all the questions that ran through my mind.  I'm going to tell you what I think.

Investing in stocks is a way to leverage profits generated from great companies over many years in hopes for a nice return on your investment.  Investing is a tool to reach your particular financial goal.  Goals that may include saving for your children's college, supplemental income, funding for charity/programs and retirement. Of course I hear people say investing in stocks is risky!  Those are usually the people that think investing in CD's and savings accounts is a good idea.  Or they have no money because they own one of everything.  That my friends is keeping up with the Joneses!  I can address both of these issues and suggest a way to have your money working for you.

I don't mean to offend anyone that may own CD's or have a substantial amount of money in their savings account,  but I believe investing in stocks is a better alternative. 

I would never invest in CD's aka Certificate of Deposit.  Never! Never! Never!  Here's why.

Current Example:  10 yr CD Rate vs. stock that pays the same dividend yield

$10,000 investment

10 yr CD Rate 2.23% $10,000 would roughly turn into $12,467.62 That's about $246.76 a year.

Now you may say well if the rates are the same it should return the same amount of money.  This is true, but stocks offer dividend reinvestment, appreciation in the stock price, and increased dividend payout.  That's the game changer! 

A stock that raises its dividend distribution 10% annually for 10 yrs would turn into $14,840.08  That's $2,372.46 more than the same amount of money invested.  Almost double the money!  Obviously doing this for 30-40 yrs would be substantial to your portfolio.

At 30 yrs $10,000 invested in a CD with a rate of 2.23% would turn into $19,379.87

30 yrs with a stock that pays a 2.23% dividend yield and raises dividend distribution 10% annually (Remember dividends are reinvested) turns into a whopping $433,637.11  Over 30 yrs annualized return with dividends reinvested equates to 13.39% return on your money.

Obviously, this is purely an example and is very realistic for a company to increase dividends at a rate of 10%.  That means the CD investors are missing out on a lot of money!  $400,000 of cold hard cash.  Even if I'm off by a bit the return on dividend paying companies that increase their dividend payout consistently overtime will destroy a CD!!!!!  The risk is well worth the reward...

CD rates will go up over the next 30 years, but you get the point!

The example above shows that $10,000 of your money has the potential to turn into something great!  Using stocks as a vehicle to generate the money for you.  Imagine trying to save $400,000 on your own.  Let's say you made $50,000 a year and saved roughly 10% or $5000 per year.  Without the help of an investment vehicle compounding over time it would take 80 years to save that kind of money.  That means at my current age of 30 I would be able to save $400,000 by the time I'm 110. No thanks man!

Now as for a savings account the interest is much worse and I don't consider this an investment.  A savings account is meant for emergencies and short term liquidity.  Having 3-6 months of expenses in a savings account is the most anyone should have tied up in something that isn't keeping up with inflation.  Once your savings is built I would put the rest of your money to work for you.   Consider each dollar you save as an employee.  Invest in assets not liabilities, whether it be equities, real estate, commodities etc etc.... Overtime your money will grow aka your employees and you will have a nice chunk of change generating income every year.  Eventually, your money will create enough income to replace your earnings you bring in as an employee, which in turn leads to retirement!  Retirement or a choice to do anything your heart desires... It's always great to have choices. 

Lastly,  the part of about keeping up with the Joneses is by far the biggest wealth destroyer.  It's sad to see people deeply in debt because they want to impress their friends.  Continually buying stuff that you can't afford over your lifetime will put you in the poor house.  The only person you are making rich are the banks and credit card companies.  The next time you buy something think to yourself do I really need this crap?  Most of the time its a want and not a need.  Buying toys overtime is good in moderation.  Just think!  Eventually your investments will generate enough income that you can go buy anything that you would like.  Buying stuff you can't afford early on in life will dramatically slow down your opportunity to create tremendous wealth.  I promise you that!  I was that guy in college.  I was so broke I couldn't even think straight!  I have learned from my mistakes early on in my life and I'm grateful for that. 

This is the reason why I'm so passionate about teaching others to invest for their future.  The winning equation is to buy more assets than liabilities throughout our lives.  That's it! Plain and simple.

Have a great night!

Clay


Full Disclosure

Current Holdings:
Cosi Inc. (COSI)-Monster Portfolio
Caterpillar (CAT)
Westport Innovations (WPRT) Monster Portfolio
Kinder Morgan Energy Partners (KMP)

I'm not a licensed financial advisor. All recommendations is strictly my personal opinion and the information is intended for learning purposes only. Invest at your own risk!

Investing In Individual Stocks

If any of my followers are wondering my Monster Portfolio 2011 has improved since my last post and I'm on track towards my aggressive goal of finishing up 10% on the year. Also, on top of that I will be donating 10% of my earnings towards my charity of choice. 

Today I would like to discuss investing in individual stocks and what I have learned over the past 9 yrs of investing.  I can honestly say that investing in individual stocks can be difficult. You can make a lot of money and you can lose of lot of money.  The difference between winning and losing comes down to the amount of time and energy you put into researching a potential investment.  During my first couple of years of investing in individual stocks my success was hit or miss.  Maybe I was lucky that my first investment of Sirius Satellite Radio (SIRI) had a positive outcome!  Frankly the only reason I invested in the company was I thought it was a cool product and the price of the stock was cheap to my standards.  At a $1.82 a share being a broke college student this stock was right up my ally.

This strategy didn't work for long as I chose other cheap stocks that didn't work out very well.  My performance was rather negative.  My biggest investing mistake I have ever made was a company called Gamez n Flix (GZFX)  The company had a great concept similar to Net Flix.  They rented video games and movies through the mail.  Unfortunately, this company wasn't well capitalized and the management was sub par.  The outcome was I invested my money and I never received it back.  LOL!  They went bankrupt!  This stock was cheap for a reason. If I would have done my research I would have saved myself a lot of money.

Over the years I learned from my mistakes and my performance has improved with my stock picking abilities.  I contribute my success to extensive research, patience, and constantly looking for my next investment.  I have learned that if you over stay your welcome in a fast moving stock that eventually you give all of your gains back and then some.  My time horizon is situational.  I primarily invest in growth companies and as many of you have seen investing in individual stocks can be quite volatile.  The best resolution to reduce volatility is to diversify your portfolio. Another strategy that I use is to always have another investment opportunity on the back burner.  If you believe your investment has increased in value and isn't sustainable you have 3 choices

1.  Sit tight and ride out the volatility
2.  Sell into strength and wait for the price of your investment to come back down to cheaper prices
3.  Sell into strength and invest in other companies that have a better potential for return

I like choice number 2 and 3.  Option 3 works well!  No it's not fool proof, but if you can sell into strength and cycle your money into a better investment opportunity the potential for success is increased drastically!  Constantly keeping your money moving allows you to educate yourself on other companies, make money, and reduce risk all at the same time. Plus its extremely fun and it forces you to pay attention to your money.  A majority of the time I sell a stock is because I have a better opportunity elsewhere.  This allows my original investment to come back down to buyable prices and I cycle in and out of my favorites.  On the other hand if you buy and hold your stocks through high volatility you could make money, but now your up against buyer's remorse, emotional attachment, and the possibility of missing other great investments.  I have experienced this first hand. 

I'm not saying buy and hold is bad, but this strategy doesn't work particularly well with high growth stocks.  If you are going to buy and hold you are better off investing in well established dividend paying companies with consistent growth.  This strategy didn't work for me because I became bored and sold the stock at the wrong time. 

In conclusion find a strategy that works for you!   Constantly challenge yourself to learn each and everyday of how to become a better investor.  You can't always make money and at times you will want to give up.  In the end if you come out on the other side with more money you shouldn't be complaining.  My recommendation is to do your research, be patient and constantly keep your money moving.  Those 3 key factors have helped me develop a winning strategy. 

Clay-

Monster Portfolio 2011 Week 32 Results

MONSTER PORTFOLIO 2011


Balance: Inception 01/07/11
$1977.32 Stock
$13.65 Cash
Total $1990.97

Balance: End of Week 31 08/19/11

$2,206.04 Stock
$65.38 Cash
Total $2,271.42

Since Inception: -14.57%

My portfolio has dropped down to a balance of $1,700.92 excluding cash. 

All I can say is the market is volatile.  Roughly a month ago I was up over 7.0% and now I’m back in a black hole, down -14.57%. That’s a 21.0% hit.  Most people would freak out, but I’ve been in this situation a few times in my investing career.  One thing I have learned from my 8+ yrs of investing is to not panic.  I have sold at the bottom numerous times and I end up regretting it.  Stay the course.  I have and I suggest you do the same.  Apple and Weatherford will prevail!    I may be down at the moment, but things could change rather quickly.  I still have until December 31^st to make a turnaround. 

If we get another strong day tomorrow it will be one step closer to indicating the pain has come to an end.  I’m optimistic.

Have a great night!

Current Holdings:
Apple (AAPL)
Cosi Inc. (COSI)
Weatherford International (WFT)

Clay-

Happy Father's Day! The Importance Of Investing, Saving, And Getting Out Of Debt.

First off I would like to say Happy Father's Day! 

Today I'm going to briefly talk about the importance of investing, saving, and staying out of debt.  This is somewhat off topic from stocks, but will be beneficial to your investing future.  Over the past couple of years you may have read about and seen people who are in financial trouble.  People who have lost their jobs, homes, and financially cannot support themselves.  The economy was crushed and the financial system has failed us.  This was and still is an ongoing disaster!  For many including myself this was a perfect wake up call.  Many of us live on the edge week in and week out.  We are a week out from financial disaster.  The saying living pay check to pay check is sad but true.  It doesn't have to be like this! 

The one thing to realize is that the only person that can help you is yourself.  I'm sorry to say at least for those people that are in there 20's and 30's that the government will not be there to help.  Social Security isn't properly funded and in my opinion will not be around by the time I retire.  This is another reason why investing for your future is so important. You have to want to be financially stable.  If this isn't that important to you then it won't happen.

The first step is to get out of debt.  Many of us have debt that include student loans, car loans, credit cards, and a mortgage to name a few.  Basically, were making other people rich by borrowing money and paying interest to them every month.  To me it's more of a headache than anything.  It's hard to get ahead financially when your trying to invest and at the same time you are paying interest to the banks.  You would have to have some pretty lucrative investments to generate a return that could cover the amount of interest you are paying on your loans and grow your investments.  So please pay off that debt.  You are robbing yourself of the good life!  I'm being robbed right now as well, but I have made it a priority to pay off the debt that I have so I can invest more money for my future.

Next would be saving money.  Having a savings account or what some people may call an emergency fund (For all those Dave Ramsey's Fans) is important to protect yourself from life's unexpected problems.  If you have built up a decent amount of savings say 3 to 6 months of your living expenses life wouldn't be as stressful.  If your car needed repairs, or your hot water heater decided to fail and ruin your floor in your utility room (this happened to me!) having savings would make these situations be more of a headache than a financial disaster.  Having cash on hand will protect you from having to go into debt to pay for what could easily be covered with a little savings.

Lastly,  you need to invest your money overtime for the future. Invest for your age and risk tolerance.  Invest as much as you can.  If its $5 a week or $100 its something.  Take advantage of your employer's 401K program and invest up to what your employer will match.  Usually the match is a percentage of your income, once you have met the full match put the rest in a Roth IRA or into a taxable investment account.  If your employer doesn't offer a 401K program open up a Roth IRA. 

I can't stress enough that just starting to improve these 3 key areas of your finances will help you drastically down the road.  Reduce debt, save money for an emergency, and invest like crazy!  When it's all said and done you should have a large amount invested and should be able to live comfortably off the interest your money generates for you.  Your hard earned money is working for you and your not giving it away to make others rich!  Plus who knows what the future will bring.  Our taxes may rise, health care costs will be higher as we get older, and of course there is inflation.  Start early and continue to play defense with your money and retirement should be a delight.

Thank You,

Clay-

Have a Question? Send Questions to wheatleycsmk@gmail.com

New Content every Thursday and Sunday.
Occasional Stock Market Commentary during the week.
Feedback Welcome!
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New To Investing? Invest For Fun! Test Your Skills At Marketocracy

Hello,

Thought I would put this out here.  If your new to investing and wish to test your skills check out marketocracy.com I have been using this investment site for over 3+ yrs and it's a great way to test your investing ideas without using your own money.  At Marketocracy you will be able to create your very own mutual fund.  You will start out with $1,000,000 to invest.  You will be able to track your progress and see your rankings against other investors.  It's a phenomenal learning tool!   Give it a shot! 

Thank You,

Clay-

Have a Question? Send Questions to wheatleycsmk@gmail.com

New Content every Thursday and Sunday.
Occasional Stock Market Commentary during the week.
Feedback Welcome!
Interested? Please become a follower

Want To Invest For The Future? Try Mutual Funds

Today I want to cover a great way for an individual investor to put their money to work. That way is with Mutual Funds. What is a Mutual Fund? A Mutual Fund is commonly referred to as a diversified portfolio of various stocks, bonds, and cash. Mutual Funds usually are typically offered by a Financial Institution and are managed by a professional fund manager.

The great thing about Mutual Funds is that they offer an individual investor to have access to a diversified portfolio at a fraction of the cost. What this means is that a Mutual Fund is a pool of money from many investors. The fund manager that runs the fund chooses to invest the money to which they see fit. Many Mutual Funds consist of 100 or more stocks, but there are some funds that have less.

The first thing to consider when investing in a Mutual Fund is your age. This will determine what type of time horizon you have to invest and build wealth. This also will reflect what type of Mutual Fund you should be investing in. Not all Mutual Funds are created equal! Some funds have higher risk/reward than others and you as an individual must find that risk tolerance.

This is all I have for now as this topic will be covered over multiple posts. Next time I will explain more into detail of how age plays a factor in investing. Also, we will cover what to look for when choosing a mutual fund.

Thank You,

Clay-

Have a Question? Send Questions to wheatleycsmk@gmail.com
New Content every Thursday and Sunday.
Occasional Stock Market Commentary during the week.
Feedback Welcome!
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It’s Never Too Late To Start Investing!

Today I want to talk about investing for the future.


Why do we invest? There are many reasons to invest your money. The most common reason that comes up in a conversation is Retirement. I’m here to tell you that investing for the future is essential. I here a significant amount of people in the media and everyday life stating they don’t have enough money to invest. Yes we all have certain financial obligations, but that isn’t a good enough reason to not save a little money for a rainy day.

The key to investing and saving for the future is to simply start. Starting is half the battle. Not starting could cost you 100’s of 1,000’s of $$$ down the road. Procrastination is not part of your future financial well being! It’s never too late to start!

The figures below are a few calculations I compiled to show what just a few dollars invested over a set period of time can turn into a substantial amount of money. This displays how long term investing really adds up.

Interest rates are hypothetical and are not guaranteed.


Age: 20
Monthly Contribution   /   Final Nest Egg:
$40                                                               $730,184.47
$80                                                               $1,460,368.93
$160                                                             $2,920,737.86
Invested (Yrs): 45
Retirement Age: 65  
Interest Rate: 12%      

Age: 30

Monthly Contribution   /   Final Nest Egg:
$40                                                               $232,062.30
$80                                                               $464,124.59
$160                                                             $928,249.18
Invested (Yrs): 35
Retirement Age: 65
Interest Rate: 12%

Age: 40

Monthly Contribution   /   Final Nest Egg:
$40                                                               $71,680.29
$80                                                               $143,360.58
$160                                                             $286,721.15
Invested (Yrs): 25
Retirement Age: 65
Interest Rate: 12%

Age: 50

Monthly Contribution   /   Final Nest Egg:
$40                                                               $20,041.57
$80                                                               $40,083.15
$160                                                             $80,166.30
Invested (Yrs): 15
Retirement Age: 65
Interest Rate: 12%

These numbers show how the magic of compound interest works to your advantage. You might ask, what is compound interest? Compound Interest means that each time interest is paid, it is added to or compounded into the principal and thereafter also earns interest. Definition pulled from http://www.extension.iastate.edu/agdm/wholefarm/html/c3-05.html
Calculations came from an investment calculator.  Feel free to input your numbers!
http://www.moneychimp.com/calculator/compound_interest_calculator.htm


This calculation above was part of the reason I started to invest 8 years ago. $40 a month is definitely obtainable for most. For instance $40 a month could be 1 trip to a nice restaurant, purchasing a drink and a bag of chips at work daily, or eating out for breakfast on a routine basis. Yes these examples may not pertain to you, but think real hard of what you might give up for a chance of financial freedom in retirement.

Remember it’s never too late to start investing!

Thank You,

Clay-

Have a Question?  Send Questions to wheatleycsmk@gmail.com
New Content every Thursday and Sunday. 
Occasional Stock Market Commentary during the week.
Feedback Welcome!
Interested?  Please become a follower

Nice Day For Stocks! Dow up +148.65 points to close at 10,896.91 (+1.38%)

Looks like we could be back on track.  The past week or so has been brutal.  I'm seeing a lot of money flow back into my favorites.  Keep an eye on my suggestions. These are the market leaders! The companies that drive the stock market higher!  Let's see if tomorrow we can keep the positive momentum going.  Happy Investing!

AAPL- Apple up +2.17% today
WFT- Weatherford International (I really like this one) I personally own this company! up +2.90%
INTC- Intel up +3.64 % today
GS- Goldman Sachs (These guys will shrug off the SEC probe) up +3.68% today
CAT- Caterpillar up +3.15% today

Thank You,

Clay-

If this was beneficial information or you would like to comment please do.  I would like to hear what you have to say.  Feedback Welcome!

How To Get Started Investing In The Stock Market

    So I recently was just asked in a previous post of where do I start to get into the market and how much money would I need to get into the game?

    There are multiple ways to begin investing in the stock market. Here I will suggest a few common ways to start investing. One option would be to open an online brokerage account. Opening an online account is very easy to do and is a great way to learn about stocks because it provides you with the tools to do your own research and allows you to buy and sell stocks at your discretion. Some online accounts require a minimum deposit to get started. However, Sharebuilder is an online service that requires very little money to get started. They state there is “No account minimum open an account with any amount.” I personally have experienced their service and highly recommend someone that would like to start investing to check out ShareBuilder and with a fee of $9.95 a trade it’s a low cost way to get your feet wet. Another great online broker is Scottrade. I personally invest in stocks through Scottrade. To open an account requires a modest $500 min Deposit and trades are only $7.00. I would suggest if you want to trade individual stocks to start out with at least $500. If you invest with less then $500 the transaction fees of buying and selling stock add up rather quickly and may affect your return on investment. Other comparable online reputable brokerage accounts are E*Trade (no min for retirement account $500 min deposit $9.99 a trade), Fidelity (min deposit $2,500 as low as $7.95 a trade), and TD Ameritrade ($1,000 min retirement account $2,000 min non retirement account $9.99 a trade) to name a few. I have only had experience with ShareBuilder and Scottrade so do your research to figure out which online brokerage best serves your needs. Online trades are subject to change and may very in prices depending on your account balance.

    Another way to invest would be through your bank. Banks offer many of the same types of services that online brokers provide and banks have the added benefit of building the one on one relationship that many desire. This is a great way for people that are uncomfortable investing online to have exposure to the stock market. Plus when you have a question about investing you can pay a visit to your local branch and do your banking at the same time.

    The last common way to invest would be through your employer in a retirement account. Depending on your employer they may match your contribution up to a certain percentage of your income. This is definitely a great advantage and gives you jump start on building wealth. I tell everyone that I come into contact with to take advantage of the company match. IT’S FREE MONEY!!! Another advantage is that the contributions you allocate per pay period are tax deferred, which means you will not be taxed until retirement. This will also lower your taxable income and may put you into a lower tax bracket. And lastly if you happen to change jobs you can always take your money with you and roll it over into another account.

If you have any specific questions that I didn’t cover please comment as this was only a brief overview of ways to begin investing in the stock market.

Thank You,

Clay-

If this information has been beneficial feel free to let me know. This will give me a good sense of direction for future topics.