Investing 101
Saving for Retirement
For the last 6 decades, it has become harder to save for retirement. Costs have skyrocketed and incomes haven’t kept pace with inflation.
Do you remember the time when a one-income household was enough?
Today, many households need two incomes to live comfortably.
Planning for the future has become more difficult, so we hope this “Investing 101” blog post gives you the inspiration you need to start your investing journey. We encourage you to learn more, so you can map out a path to becoming financially independent.
What is Investing?
Investing is setting money aside today in order to receive more money in the future after inflation.
Who Should Invest?
If you have no debt and have an adequate emergency fund, you should invest. Generally speaking, an adequate emergency fund is three to six months of living expenses.
Why Should You Invest?
Over the long-term, money sitting in a savings account is a guaranteed way of losing purchasing power due to inflation. Here are some what some things approximately cost in 1963 vs. today:
| 1963 | TODAY | |
|---|---|---|
| Gallon of Milk | $1.04 | $3.90 |
| Dozen Eggs | $0.55 | $2.89 |
| Median US Home Price | $19,300.00 | $454,300.00 |
| Gallon of Gas | $0.32 | $3.49 |
| Median New Car | $3,233.00 | $48,000.00 |
| Movie Ticket | $0.85 | $11.35 |
| Pack of Cigarettes | $0.30 | $7.00 |
When Should You Invest?
Now! The earlier you start, the longer your compounding runway will be.
To see how much $100,000 can grow to over 30 years, please see the table below:
As you may have noticed, a difference of even just 2 percentage points on your investment returns can make a very big difference in how much you will have saved 30 years from now. In the early years, you may not notice a difference, but in the long run, the difference can be very significant.
Think of compounding your money as if you were rolling a snowball down a mountain. When done properly, investing in stocks can allow you to turn your snowball into a huge boulder.
Over the long run, leaving your money in a savings account is like rolling a snowball down the bunny slopes.
Where and How Should You Invest?
There are so many ways to invest, and everyone has their own unique situation, beliefs and goals.
The key is finding the investment philosophy that matches with your own personal temperament and circumstances.
In our other blog posts, we discuss growth vs. value investing, index vs. active investing. We also wrote about the 10 Commandments of Investing for people to keep in mind, and 8 Steps to Becoming a Great Stock Investor.
Another very important consideration is the macroeconomic environment. There will be times when stocks are more attractive than bonds, but there will also be times when bonds are more attractive than stocks.
We hope to write many more blog posts than the ones we currently have to help increase your investment knowledge, but if you need personalized assistance in how to invest, please contact us.
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Earl Yaokasin, CFA, is an investment manager who runs WealthArch Investment Services in Pasadena, CA. He is a fiduciary with over twenty years of experience, and whose entire personal portfolio is managed by the firm in the same investments as the company’s clients. His firm focuses on value investing, similar to Warren Buffet’s successful approach, and disciplined strategies designed to create growth with downside protection, enabling clients to move steadily towards their life goals and aspirations with confidence.