You need substantial retirement savings to prepare well for retirement.
The U.S Social Security Administration estimates you need to save at least $804,342 in today’s dollar to retire comfortably. The calculator on CNNmoney.com assumes you are age 37 years and you already have $100,000 in savings
In the first part of this article, I showed how saving at least 10 percent of your income could-compound to a substantial savings over the long term.
In addition to saving cash,there are two other things you could do to boost your retirement savings:
You need to invest the interest on your saving and seek financial advice
Investing the interest on your savings
The secret to accumulating wealth over a long time frame is compounding
Albert Einstein calls compound interest the eight wonder of the world.
When you reinvest the interest on your savings over a long time frame, your retirement savings could become substantial.
The main problems with saving only cash for retirement are that inflation and devaluation can erode its value.
The US dollar has lost value since 1980. The near zero interest rates on savings deposits makes them unattractive.
You need a better way to invest your money so you can beat inflation. You need to invest in such a way that there is little risk your savings. At the same time allow the power of compound interest to work on increasing the value of your savings.
The best way to get a higher rate of compounding with your retirement savings is investing in the stocks of legacy businesses
Why? Because most wealthy individuals made their fortune from investing in the stocks of legacy businesses
Warren Buffet, Carl Icahn, Kirk Kevorkian made their fortunes investing in legacy businesses
Why? Because legacy businesses have strategic advantages that allow them expand consistently over time.
Legacy businesses focus on building powerful brands from simple, evergreen products.
As a result they generate profits that pay out dividend to its shareholders. Dividends are earnings you get on your original stake in these businesses.
You can achieve substantial wealth from reinvesting your dividends in buying more stocks for your retirement savings. In fact investing in legacy stocks must be a pillar in your pension savings plan
Warren buffet, one of the richest men in the world made his fortune investing in legacy stocks.
Buffet’s business Berkshire Hathaway owns 400 million shares of Coca Cola with a value of $16.5 billion as at December 31st 2013
How did Buffet accumulate this huge stake in Coca Cola? The answer is simple.
Buffet bought Coca Cola’s stocks and reinvested the dividends in buying more shares
In 1994 Buffet’s company ,Berkshire Hathaway owned 200 million shares of Coca Cola that was worth $750 million. This earned Buffet $88 million in dividend payments by the end of 1995.
By reinvesting the dividends of his Coca Cola stocks over the last 15 years, Buffet now receives $375 million in dividends
This means that Berkshire Hathaway is getting a 50 percent return on the original money invested in buying the shares of Coca Cola
That is the power of compounding at work.
The secret to increasing your wealth with legacy stocks is buying and reinvesting the dividends you receive like Warren Buffet
You reinvest the dividends in buying more of the stocks until it grows into a substantial amount
In other words you allow your money to accumulate with the power of compound interest
The power in compounding with legacy stocks is that it is easy to do once you start. You don’t need monitoring, activity or effort to use compounding for legacy stocks.
Start by finding a legacy stock, and then reinvest the returns with your original stake.
You then keep reinvesting your returns and original stake until it snowballs into a substantial income
Legacy stocks deliver returns on your original investment. So your retirement savings keeps on growing
Seek help of a financial expert
You may also need financial advice to grow your retirement.
Why? I believe you may need a financial adviser because you have so many investment products available that you could get overwhelmed.
A financial adviser will help you sift through the load of investment products so you can make the right choice.
You also need financial advisers to help with tax planning with your retirement savings.
It’s important that you are clear about what you want to achieve before seeking financial advice.
Remember , the main purpose of saving for retirement is capital preservation.
The sad reality is that the financial advice industry is not geared toward helping you save money.
Majority of financial advisers only provide advice on buying investment products that trade in the stock market.
You cannot achieve wealth by trading stocks. The only way to achieve substantial savings from in the stock market is: buy and hold legacy stocks
Investing in stocks is just one part of investing for your retirement.
Why? Because stocks are just one part of the whole asset classes available for investing towards your retirement.
If you want to substantially grow your retirement savings you need to invest your money in other asset classes.
Why? Because the key to safeguarding your retirement savings is asset allocation
Asset allocation in other words is how much money you would invest in stocks versus cash, stocks versus gold, bonds versus real estate , etc
Asset allocation -deciding where and how you spend your money and in what proportion over times is what -separates the average investor from the wealthy
Asset allocation is so important that the US Securities and Exchange Commission says it allows you take advantage of the magic of diversification
The SEC defines diversification as:
The practice of spreading money across different asset class to reduce risk
Asset allocation is important for retirement savings because you want to minimize risk. Because your primary objective is to preserve capital and at the same time increase your retirement savings.
How do you take advantage of asset allocation? The answer is you may need a financial expert.
You are still the best person to manage your money.The buck of taking important decision lies with you.
You should never lose sight of your responsibility to manage your money.Financial adviser should only act as your guide not decision makers.
The key to making better decisions and working with financial advisers is education.
You need financial education so that you can make better investing decisions with your money
when you are using a financial adviser make sure the advice you get matches your retirement savings plan
In summary, building a substantial retirement saving is possible.
The key to building a substantial retirement nest egg is saving early and having the discipline to invest your money wisely.
You also need to view your savings as a long-term time project.
The greatest force you have when you take a long term view of your retirement savings is compound interest.
Therefore you need discipline and patience to allow the miracle of compounding to work on increasing the value of your money.
Here are a few action steps you start to increase your retirement savings
- Start the habit of saving money for your retirement today.
- Save at least 10% of your earnings.
- Invest part of your savings in legacy stocks that pay dividends.
- Reinvest the dividends in buying more stocks
- Invest in your financial education
- Seek financial advice on the various asset class
- Invest your money in more than one asset class
- Once you start remain focused and consistent until you grow you achieve your objective
