Making it even better is the fact that the money going into your plan comes right off the top of what your employer reports to the IRS. It’s not sexy and it won’t wow the neighbors, but getting an automatic $0. 50 for every dollar you save is tough to beat.
Just as the fast lane and the slow lane on the highway eventually will get you to the same place, there are quick and slow ways to double your money. If you prefer to play it safe, bonds can be a less hair-raising journey to the same destination. Consider zero-coupon bonds, including classic U. S. savings bonds, for example. The difference between price and value is an important distinction, as a company’s stock price can vary wildly without their value ever being affected. When a company has a moat, it means that it is difficult for competitors to come in and carve away a portion of that company’s market share. If you are going to invest in a company, it needs to have some sort of personal meaning to you. Companies live and die by the people who are running them, and you need to make sure that any company you invest in is managed by executives who are honest, talented, and determined.
A 401 plan is a tax-advantaged retirement account offered by many employers. For most Americans, that means that each dollar invested costs them only $0. 65 to $0. 75 cents.
If you are able to find these companies to invest in, achieving average annual returns upwards of 15% is certainly within the realm of possibility. A wonderful company is one that will continue to grow as the years go by, surviving whatever challenges the market may throw at them along the way. Keep in mind that you’re still making money either way. While you certainly can make money doing this, the problem is that no matter how skilled at trading you become, there will always be a big element of luck involved. When you purchase a bond, you are essentially loaning money to either a company or the government. When the value of the company grows over time, so do the price of the shares you own, meaning that you can sell them at a later date for a profit.
One hidden benefit is the absence of reinvestment risk. With standard coupon bonds, there are the challenges and risks of reinvesting the interest payments as they’re received. With zero coupon bonds, there’s only one payoff, and it comes when the bond matures. For example , instead of paying $1, 000 for a $1, 000 bond that pays 5% per year, an investor might buy that same $1, 000 bond for $500. As it moves closer and closer to maturity, its value slowly climbs until the bondholder is eventually repaid the face amount.
More automation, less fees, and easier to access your money if you need it. Here are some other choices for brokerage companies to open an account at. For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure.
TheCollegeInvestor. com strives to keep its information accurate and up to date. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product’s website. All products and services are presented without warranty. We’re proud of our content and guidance, and the information we provide is objective, independent, and free. The Rule of 72 is defined as a shortcut or rule of thumb used to estimate the number of years required to double your money at a given annual rate of return, and vice versa. Retirement planning is the process of determining retirement income goals, risk tolerance, and the actions and decisions necessary to achieve those goals.