Posted by Ryan on June 11th, 2008 in Investment Planning

The editor of Money Magazine recently wrote about Why We Flunked 401k, and mentioned some frightening statistics. In 2006, the median 401k balance was only $22,000.

This number is probably fairly skewed since there are 28% of eligible employees who don’t even bother to sign up for their 401k. And according to the Money article, 401k administrators say that many make investing errors when they do participate. They miscalculate their risk, don’t align their investment strategy with their goals, and make the same mistakes that every other investor makes (see 10 Mistakes Every Investor Makes).

Naturally, during tough economic times with uncertainty in the market, people make matters worse for their retirement future. Those without a balanced portfolio are likely seeing their retirement savings take a beating, and others may have stopped investing all together.

But it is times like these when a balanced portfolio is most important. It will limit your losses and protect your investment. When there is uncertainty in the market, it is an opportune time increase your contributions and take advantage of discount stock prices. As Warren Buffett says, “be fearful when others are greedy, and greedy when others are fearful.”
It seems counter-intuitive to invest when the market is performing poorly, but it may be the opportunity in your life to get rich. It’s interesting that when stocks hit an all-time high, everyone rushes to get in the market and become an expert at picking stocks. However, all they did was buy when things were most expensive.

Getting past the head game when investing is not easy, but it is essential if you want to build wealth. If you’re not contributing to your retirement plan, or have decreased your contributions because of the current market conditions, sit down and really think about your goals.

• When do you want to retire?
• How much will you need?
• How will you get there?

Today and tomorrow’s market conditions should not affect your investment decisions. Throughout a lifetime there will be many ups and downs, and the downs give you the opportunity to accelerate your wealth.

Millionaire Money Habits: Remind yourself why you are investing, your investment strategy and your goals, and let that determine how you are contributing to your retirement plan. A $22,000 401k balance won’t get you there, so start regularly stashing away more money so you can retire early and retire well.

9 Comments

Posted by Ryan on June 9th, 2008 in Investment Planning

Millionaire Money Habits newsletter subscribers received a free copy of 10 Mistakes Every Investor Makes and How to Avoid Them. Warren Buffett teaches that making money in the stock market isn’t about how much you make on an investment, it’s how much you can avoid losing. During volatile times like these, Warren Buffett’s philosophy is more important than ever before.

How long has it taken you to build your retirement account to where it is today, and how many sacrifices have you made to make those contributions? Double check that you are not making some of these common mistakes that could be draining your hard earned retirement account.

Not Investing: The annual performance of the market is highly relied upon just a few top performing days. You can’t afford to not be “in” the market and miss those days, and studies have proven that you cannot time the market.

If you haven’t started investing, it’s important to get going as soon as possible. Decades of appreciation on your portfolio will produce enormous wealth, and time is the stock investor’s best friend. Being a long-term investor is a guaranteed way to become a millionaire, as it allows you to take advantage of the greatest wealth creating formula (see The Power of Compound Interest).

Not Taking Enough Risk: Being a saver will not get you anywhere. Even high-yield savings account and other fixed-income investments cannot keep up with inflation at today’s rates. That means you’re actually losing money by playing it safe with bonds and CDs. If this is where you are keeping your money, it is certain to under-perform.
Why settle for 3% or lower in investment returns when the stock market returns around 10% over a 10-year period? If you have a long way to go before retirement, take on more risk by adding more small-cap and international investments. In the short term they are more volatile than large-cap stocks, but they can produce exceptional returns.

Ignoring Taxes and Fees: Do you know how much you are paying for your mutual fund fees? How about the cost to purchase and sell your investments? Are you giving 35% of your profits to the tax man due to short-term capital gains? After all is said and done you may have lost money even if you portfolio had a stellar performance. Minimize your fees by using Zecco’s free-stock trading platform and investing in low-cost mutual funds.

Emotional Investing: How often are your investment decisions made by thinking “what if it goes lower,” or “maybe I shouldn’t sell . . . what if it goes higher?” Always have an investment plan and know what are willing to lose. Don’t let the media and “the crowd” influences your investment decisions. In fact, you may be better off doing the opposite. The masses are almost always wrong.

Are you making some of the other biggest investment mistakes? Download 10 Mistakes Every Investor Makes and How to Avoid Them for free by subscribing to the Millionaire Money Habits Newsletter.

Millionaire Money Habit: Investing mistakes are easy to make and overlook. Double check that you are not hurting the performance of your portfolio and learn how to avoid the 10 most common investing mistakes by signing up for the newsletter.

2 Comments

Posted by Ryan on June 8th, 2008 in Recommended Readings

Here is a collection of the top blog posts from around the personal finance blogosphere. Take some time to read through the Millionaire Money Habits archives and the read the articles below to improve your financial education and learn how to become a millionaire.

Spotlight: Need a guide to cut down your grocery bills? Thank beingfrugal.net for teaching us how to effectively plan to do Grocery Shopping for A Month.

Money Management:

• Making Money Through Day Trading: The Secret Lives of Stay-At-Home Mommy Speculators at The Digerati Life
• New Grads: 29 Money-Smart Tips at My Dollar Plan
• Usefulness and Utility Trump Asset Allocation at Blueprint for Financial Prosperity
• Saving Money is Investing - So Act like An Investor at Prime Time Money
• Make Money Now or Make Money Later at brip blap

Spending and Saving:

• Comfort Versus Security (Or Wants Versus Needs) at Paid Twice
• Gibble Answers a Reade Question on Budgeting and Reminders at Gather Little by Little
• How I Kicked My Coca Cola Habit at Mrs. Micah
• The Connection Between Your Brain and Credit Card Debt at Generation X Finance
• Got Credit Card Debt? Ten Tactics to Use Right Now to Get It Under Control at The Simple Dollar

Insurance:

• Can You Have Too Much Insurance? at The Wisdom Journal
• Insurance Coverage and Opportunity Cost at Moolanomy
• Giving the Gift of Health… Insurance at Credit Withdrawal
• Things to Insure, Things Not to Insure at WiseBread

Personal Finance Carnivals:

• Money Hacks Carnival
• Carnival of Personal Finance
• Carnival of Financial Planning
• Carnival of Financial Goals

Millionaire Money Habit: To learn how to become a millionaire, you need to perpetually improve your financial literacy. Digest as much information as possible and stick to a plan that works for you. Be sure to subscribe to this site’s RSS feed or by email to be notified of new articles posted here.

2 Comments