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smart investing

Investing

What Benjamin Franklin Taught Us About Compound Interest

We can all learn something about saving and investing from Benjamin Franklin.  Upon his death, in his will, he donated one thousand British pounds to both Boston and Philadelphia to be used to help apprentices to start their own businesses.  The interesting part of the request was that he wanted the money to be invested for 100 years.  After the 100 years was up, the Philadelphia investment had grown to $172,000.00 and Boston’s fund ended up with $2.3 million.

This goes to show you how important a role compounding interest can play in your investments.  The more time you have to invest, the more your money will be able to work for you.  As well, this lesson from history shows us the importance of choosing investments wisely.  Obviously Boston did a lot better job of selecting investments than did Philadelphia.

If you are unsure of what you are currently investing in, or if you haven’t started to save for your retirement, I would encourage you to book an appointment with a Financial Planner at your local financial institution and build a strategy for retirement and your other savings goals.  The sooner you make a plan and stick to it, the better off you will be.

For more detailed information on the full story about Benjamin Franklin, check out this article.

January 24, 2010
Investing

The Beauty of Dollar Cost Averaging

the beauty of dollar cost averagingDollar cost averaging is what you are doing when you contribute to your investments on a periodic basis such as monthly or biweekly, rather than putting down a one-time lump sum.  The advantage to dollar cost averaging is that you don’t have to worry about “timing the market”.  Instead, you buy units or shares when the market price is both high and low.  Over time, this results in a lower average unit price then if you made a lump sum contribution.

You may be doing this inadvertently but many sophisticated investors use this technique as well.  Dollar cost averaging helps you to have a positive perspective even when the markets are down, because it means that you are buying units at a cheaper price.  It’s important to note, however, that dollar cost averaging is only helpful when you are investing for the long term.

If you are interested in learning more about dollar cost averaging, check out the article at this link.

November 9, 2009
Investing

A Tip That Will Help Your Investments Grow

index your investment contributions to inflationHere’s a quick investment tip for you that will help your investments grow. When you set up preauthorized payments towards your investments, it is really important to make sure that you increase your contributions by at least 3% each year to keep up with inflation.  Although you may think it’s not necessary, the impact on the growth of your investments is significant.  All you need to do is contact the institution that holds your investments once a year and ask them to increase your contributions by a few dollars.

To illustrate my point, if you contribute $250 each month into an investment account for 30 years and you increase your contributions by 3% each year, in 30 years your investment could be worth as much as $341,179.  However, if you contribute $250 each month for 30 years and do not increase your contributions to keep pace with inflation, your investment will be worth approximately $243,927, which is almost $100,000 less!

Although inflation is often hard to notice from one year to the next, it becomes very apparent over a timeframe of ten years or more.  For example, what cost $100 in 1998 would cost $131.52 in 2008. Also, if you were to buy exactly the same products in 2008 and 1998 they would cost you $100 and $77.68 respectively.

You can find more examples and get a better understanding of the effects of inflation over time by checking out the Inflation Calculator at http://www.westegg.com/inflation/.

Don’t forget to give your financial institution a call in order to increase your contribution amounts.  You won’t even miss the extra couple of dollars you contribute, and your investments will grow a lot more as a result.

October 30, 2009
Investing

Read The Free Chapter From Multiple Streams of Income

read Multiple Streams of Income by Robert G. AllenI’ve just started reading Multiple Streams of Income by Robert G. Allen.  So far I am really enjoying it.  The first chapter is all about the importance of consistently saving.  He talks about how one dollar can be used to start growing a money tree and the author includes many charts indicating potential growth over the long term.

His main point is that anyone can become a millionaire if they are disciplined enough to save and invest wisely.  Like I emphasized in my last post about investing when you’re young, you don’t have to have a lot of money to start investing.  The best time is to start now.

Instead of me writing a lot about this chapter, I would recommend that you check out this link: http://multiplestreamsofincome.com/ and read the chapter for free online.  To get to the free chapter, click on Keyword Search on the left hand side of the site.  From the drop down menu, select Free Chapter and click the Go button.  I bet you will never think of investing the same way again!  The author emphasizes in a very practical and profound way just how important it is to save for tomorrow today.

October 18, 2009
Investing

Start Investing When You’re Young

start investing when you're youngThis is written especially for those of you who have just finished high school or university.  I highly recommend that you start to tuck some money away for your future.  Whether you want to save up for your first home, a trip around the world, or for retirement, the time to start saving is now.  I know it’s hard to be thinking about retirement when you’re so young, but believe me, time goes by really fast and before you know it, you will be thinking about your retirement plans.

If you’re like me, you ignored this advice and didn’t start saving until your mid 20s.  Although it’s better than nothing, it’s ideal if you start paying yourself first when you’re young.  I emphasize this because your investments’ growth potential increases dramatically the longer you keep your funds invested.

For example, if you invest $10,000.00 when you’re 18 years old and don’t touch it until you are 65, assuming an average rate of return of 7%, the value of your investment will be around $240,000.  By contrast, if you invest the same amount at age 25, assuming the same rate of return, the value at age 65 will be approximately $150,000.  So, by investing 7 years earlier, the end result is about $90,000 extra dollars in your pocket at retirement.

Although it may seem difficult or even impossible to start saving for retirement at such a young age, I can guarantee that it is worth it and you won’t regret it.  Many financial institutions will allow you to start investing with a minimal amount of money and then you can continuously build up your accounts by setting up preauthorized payments that are within your budget.

You don’t have to have a lot of money to start investing.  Don’t put it off until you are older.  It’s time to start investing today as the more time you spend in the market, the more growth you will see and the more likely you will be able to achieve your goals.

October 16, 2009