Foundation for Saving
In an era where most Americans have fallen behind on personal savings targets and where governmental funding for social security is highly questionable, the environment is nonetheless stacked in favor for those with the discipline to regularly invest for the future. First, however, a consideration of the average household financial situation may provide some context for the importance of investing opportunities.
In 2019, Experian reported that the average total debt per consumer, which included mortgages, was slightly over $90k. This debt level should be considered in relation to the average annual income of just over $50k. To gain a wider picture, overall net worth must also be considered. While average household net worth rang in at nearly $750k, the value is significantly skewed by the impact of extremely high net worth affluents. Median net worth per household, a better gauge of a typical family, came in at slightly under $125k.
The included chart, provided by the Fed from the Survey of Consumer Finances, offers a look at both average and median household net worth by age. Fortunately, we live in an era where a disciplined approach can provide a substantial means for wealth accumulation.
image from www.federalreserve.gov/publications/files/scf20.pdf
Foundation Of Advantage
The environment for wealth accumulation has seldom been brighter. By taking advantage of the opportunities provided, almost anyone with the desire and discipline to invest responsibly for ten years can establish a retirement nest egg to supplement or match future social security payments.
To capitalize on the opportunity, investors must understand each of the advantages that provide them with an edge toward wealth accumulation. Once the foundation has been established, the investor can then begin to consider further opportunities to improve financial performance. Without the foundation, however, the risks of such opportunities are significant.
In sports parlance, before you can run a four-receiver offence, you need a solid running game. Before you have a solid running game, you need a decent offensive line. Before you can commit wholeheartedly to your offensive line, you need a legitimate defensive line. And before you have a legitimate defensive line, you need at least moderately talented athletes willing to commit to the team. Before any athletes will commit to the team, you need a coach that is willing to lead the entire endeavor. At the end of the day, you have a football team, but you can’t go straight to a run-and-shoot offense before you have a quarterback.
image from www.ungerandkowitt.com
image from www.walletgenius.com
image from www.knoxnews.com
image from www.harbourwealth.co.za
image from www.tr-wealth.com
- Eliminating interest bearing debt dwarfs market options
- Ensuring cash safety net avoids high-cost withdrawals
Power of Compounding
- “The strongest force in the universe” (-Einstein)
- “Money makes money. And the money that money makes, makes money.” (-B. Franklin)
S&P 500 Index
- Long-term investors have never lost money
- CAGR approaching 10% … bests 95% of professionals
Preferred Tax Treatment
- Tax deductible (on contributions)
- Tax deferral (on growth)
- Tax-free distributions
Dollar Cost Averaging
- Minimize volatility risk
- Buy low, sell high
- Mechanical approach