I'd like to propose an aggressive retirement investing aspiration that just might help to focus the vision on a rich and fulfilling retirement: aspire to be worth your weight in gold when you retire.
I've been reading a number of posts lately that piqued my curiosity about the familiar phrase: "Worth Your Weight in Gold". Something inside was telling me that there was some kind of inspirational analogy here to motivate would be investors. We've heard the lines in movies before where the sultan or the king will pay the winner/ knight/ warrior/etc. their weight in gold. It's an unbelievable sum of money when you first think about it. But, with a little help from our finance bloggers out there you'll see that it is actually within reach.
How much would that be for the average US man and woman? Well, let's take the average height and weight. The average man is 5'9" tall and weighs 185 pounds. The average woman is 5'4" tall and weighs 163 pounds. Let's just average out that weight and we get an average human weight of 174 pounds. So, the magical Your Weight in Gold calculator tells us that is worth $2,234,243.52 based on the latest spot price of gold.
This one aspiration can lead us in the right directions to a happy retirement. To aspire to be worth your weight in gold is to aspire to be healthy, wealthy and wise in retirement.
Healthy because if you aren't healthy and happen to be gaining a few extra pounds, you need to work hard to save up enough gold for each pound, namely $12,000 per pound. So, you keep in shape because it makes you feel great and happens to help you achieve your new gold aspiration. So a few extra pounds isn't so bad, but more than that and we just may need that extra savings for more medical bills.
Wealthy because you've aspired to knock the socks off of the average American's retirement savings nestegg ($250,000). While some are forced to make due with social security and meager savings, you're probably investing, mentoring, giving to family/friends/community, and thriving in retirement.
Wise because you're a student and a teacher of personal finance philosophies. You're a reader and likely even a blogger of personal finance ideas. Most definitely a practitioner of the some of the very best advice and philosophies in personal finance.
Ok, you're asking: "It sounds great to have that aspiration, but just thinking it isn't going to make the numbers work. That sounds like a hefty nestegg to prepare. How to do it? Some numbers please?". Well, luckily I stumbled upon a blog that got me to thinking about all of this, Hunter Nuttall of HunterNuttall.com outlines How To Create A Seven Figure Residual Income. Take a look and I think you'll be inspired that this is quite doable. Now Hunter's goal was to show you that it's possible to build a portfolio that paid you a seven figure income from it's returns annually. We don't have to go that far into the horizon to get our weight in gold, so let's see how that would work out.
Play around with this handy compounding calculator using 11% as S&P 500 annual return on a $12,000 annual investment to tweak for your horizon. You'll find that it only takes us 27 years to get to our magical weight in gold ($2.3 million). So, you say "I definitely am a believer in the power of index fund investing for S&P, Small Cap and EAFE (foreign index)." That's great, me too, but I propose that you get aggressive in your savings and take advantage of all the free money around you. When I say aggressive, I don't mean to get into risky investment vehicles. Stay with the standards and easily managed index funds. Facts are that every other mutual fund tries to beat the S&P500, so why not stick with the S&P500 :-)...
Read up on all the financial blogs where they detail about maxing free money and this could possibly add 1%, 2%, 5% or more to that compounding calculator, if not, it will certainly add some dollars! Keep with the safe index funds of your choice. So, let's play with the magical compounding calculator again and see what our horizon would be with a few extra thousand a year and a point or 2 of added return (because we took advantage of low-risk super high return opportunities to help us).
Simply adding 2% points and $3000 a year to our numbers so that your investing $15000 a year at 13% we reach $2.28 Mil in 23 years. At $20,000 and 14% a year you reach $2.35Mil in 20 years.
I've outlined some strategies for maximizing your returns and free money available to you that has lots of jumping off links to other great blogs. This is just a kick start in that direction of 'Wise', I think these concepts can really invigorate and open up an avenue for more aggressively having funds avail for investing and increasing overall returns on your investments. And when I say increasing returns, I don't mean do risky investments I mean taking advantage of ideas like below where you have free money and cheap money that brings you almost guaranteed returns (401K matching at 50%, espp discounts, Uncle Sam paying 1/3 of your retirement = instant 30% returns, etc.):
HELOC + ESPP (or 0% Credit Cards) = FREE MONEY (15% to 60%+ returns)! - This was my latest revelation that I'm trying to take advantage of this year. I'm kicking myself in the butt for not thinking of this before. All that cheap money sitting in my HELOC that I could have been getting free money from my ESPP, darn! Better late than never! These are some seriously big % returns potential.
You Are A Great Investment, Don't Be Stingy! - This is a topic you hear about on many blogs and it's so valuable. You can seriously increase your yearly savings potential by increasing your salary through education. Now this doesn't mean you have to go back to school. In this post I outline and list a multitude of certifications and the increased salaries they will bring.
Your Personal Stock Market Army - The Stop Loss! - OK, this strategy working with ESPP above, or anytime your investing in stocks will have a profound effect on increasing your returns and minimizing your losses!
Solving Our Savings and Budget Issues - The No-Budget Budget Way - I think this is a good read for getting the juices flowing about the tweaks you can make on a monthly basis for finances and budget to maximize savings.
Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit! - This concept, is a must see if you're in a dilemma about building an emergency fund. It's an option, if chosen, can free up funds for investments and again maximize that aggressive compounding schedule!
Now, this is a handy aspiration that you can share with your grandchildren, niece, nephews, children. When you think about it our grandchildren have a time horizon that every investor only dreams they had. How about the next time you give the grand kids some cash in their birthday cards, you write a little note like: Johnny, this is a magic $100 bill that will bring you 'Your Weight In Gold! ... ask me how my next time, my little sweetie!'
Explain to your 5 year old grandchild that weighs 40lbs, with your friendly Your Weight In Gold calculator, their weight in gold would equal $513,619.20 dollars. Now you explain to little John or Jane that $100 added every year and compounded in an index fund for s&p 500 avg return of 11% for the next 60 years will equal: $518,218.03 (their weight in gold from one little $100 bill as the starting point).
Plonkee takes you on a visual picture quiz-tour of British People and Buildings, have some fun and see if you can guess them ... answers at the end of the carnival! There's a good number of posts to read.