In 1963, President John F. Kennedy said in a speech, " The rising tide lifts all the boats."
His phrase has been used and misused many times since that day.
The rising tide JFK spoke of, is a long term, healthy, growing economy. Will you be in a position to take advantage of the good times? The "boat" in the phrase above is your participation, or not.
In 2020, I had a boat. (boat = retirement plan) It was a 33 year old boat, nothing fancy. I didn't panic and sell my boat during the 40 % stock market decline. I depended on my "boat" to do what boats are meant to do, that is continue the journey, and get me and my family where I want to and need to go.
Within my retirement account you will find a wide variety of investments: small companies, medium sized, and large companies. Often these are referred to as small cap, medium cap, and large cap, for the amount of capital that these companies own and control. There are U.S. based, also called domestic, and and foreign, also called international, companies. There are some bond funds, and a "target" fund that uses my retirement date to offset risk and reward.
The variety and balance is intentional, and made my "boat" a safer place to be. By April 2021, the 40% decline was recovered, and the markets added a 12% gain. You could say that the rising tide, when it came around, lifted my boat.
Here are seven things to do to build your retirement boat...
ONE. Determine that you NEED a boat. Your working life may consist of several jobs, maybe even multiple unrelated careers. Through all these experiences, the clock is running. You need a retirement plan. It starts with you. It is not your parent's job, your children's responsibility, or the government's burden to sustain you in retirement. If you are married, you need a boat for two!
more information about why you have to invest NOW! https://www.nytimes.com/guides/business/saving-money-for-retirement
TWO. Take advantage of what is available to you. My current job has a 401k with a generous match. If a person contributes 5%, the company matches 7%. Think of that in dollars. for every $100 you earn, $5 of yours plus $7 of theirs = $12. If you make $600 a week, now you have $72 a week going into your retirement account. Doesn't sound like much right?
$72 a week = $312 a month. x 43 years. 7.2% annual return (average) = $1,013,651.
https://www.calculator.net/investment-calculator.html
Not realistic? The number above is actually pretty conservative. The average annual return for the last century is between 9 and 10 %.
Start now, and stay with it for your working life. Get that into a decent mutual fund (step 3). Increase your investments with raises, and put cash in the bank for your emergency fund. Even blow a little on trips and shiny things, but always keep investing. It can be done!
An article that talks about 401K accounts: https://money.cnn.com/retirement/guide/investing_basics.moneymag/index3.htm
If you don't have a company retirement plan, get some help. Fidelity has a website with calculators, educational tabs, and a toll free number to contact a local representative.
THREE. Learn the basics, and get Started. How do you learn the basics? Read, and watch youtube videos about 401K, 403b, Social Security, life insurance, cash savings, stocks and bonds. What are the basics? As soon as you are at your job long enough to participate in a 401k, go all in! My first boss at Kraft Foods, John Holton, advised me this way: " You are a young fella and you have never made any real money anyway, go ahead and put in the maximum, 16%, you will never miss it." That was some of the best financial advice I have ever gotten. I started at 10%, because I am stubborn, and at the first opportunity to increase to 16%, I did just that. John was right, and because I started early, at age 22, time and interest (step 6) were in my favor. I listened to talk radio in the 1980's and 1990's. Roy Matlock, Jr. and Dave Ramsey trained my brain and reinforced my desire to retire with some dignity.
Roy Matlock Jr. has a wonderful website with resources, news, and podcasts to get you started, motivate you, and keep you focused. To date, there are 92 podcasts available on this website. If you want to learn, this is the place to go! https://roymatlockjr.com/
Dave Ramsey also has a great site, with free financial tools. https://www.ramseysolutions.com/tools?snid=free-tools
Margarette Burnette is a author with wonderful articles, up to date topics, and an easy to understand writing style. This link is to her article on compound interest: https://www.nerdwallet.com/article/banking/what-is-compound-interest
Margarette's most recent articles, as well as some older ones, and a short bio can be found at https://www.nerdwallet.com/blog/author/mburnette/
Still have doubts? Google DJIA, and click on the different charts that track the Dow Jones Industrial Average over different periods of time. You can look at a day, week, month, year, multiple years, or all time. Notice how the bumps flatten out as the time increases. Notice also the direction of the arrow is upward over longer periods of time. The slow and steady growth is more evident.
News shows sound somber and serious as they announce "The Dow fell 100 points today." What does that mean? Can you explain what the Dow Jones Average is to someone else? If your hope for the future depends on this (or any other) indicator, you should be able to explain it. Investopedia has a nice article on the Dow Jones Industrial Average:
You should ask yourself, are we still within two or three percent of the all time high? How does this compare to a year ago. Or is this a continuing trend that has lasted days or months? Don't be so quick to trust a headline and think you know everything. Learn the back story. Educate yourself and continue learning about money, capital, and wealth.
What about risk? Not having a plan is the riskiest thing you can do. Here is a site that can help you understand your personal risk tolerance, and help you understand and shape your investment style.
https://pfp.missouri.edu/research/investment-risk-tolerance-assessment/
FOUR. Take the mystery out of Social Security. Go to the website if you have not and set up your account.
Then you can check your estimated Social Security benefit. Waiting to take your benefit increases your monthly check by about 7% a year. This Motley Fool article explains that in detail:
https://www.fool.com/investing/how-much-does-waiting-claim-raise-social-security.aspx
Each person has to decide when to take it. Think about your family history. Did your parents and grandparents live into their 80's or 90's, or did they die earlier from medical issues?
Know what % Social Security may be of your total retirement income. Understand your options and take the mystery out of Social Security.
FIVE. DO Practice Dollar Cost Averaging, and DO NOT try to time the market. Dollar Cost Averaging means that you consistently, regularly, without fail, invest in your retirement. You buy when its high, you buy when its low, you invest no matter the price or the condition of the stock market. This is the opposite of the idea of market timing, or accumulating cash, then dumping it all in at one time, trying to buy at the bottom, to catch the wave back up. (see Step six) Trying to time the market also could mean moving your money in and out of funds based on what just happened. This is called chasing returns, and is almost never a good plan. One of my dear friends told me one time that he checked his retirement every night. He shifted his investments from one fund to another, based on fluctuations in the stock market. He said, "I'm lookin' for a trend." For 99.9% of us, this is impossible. The other .1% are either really lucky, or really smart. But there is no need in gambling 100% of your future on you being in that .1% of investors.
Dollar Cost Averaging (DCA) explained in detail:
https://www.investopedia.com/terms/d/dollarcostaveraging.asp
SIX. Time and interest, and the rule of 72. It is crucial to start contributing to your retirement as soon as you can. I heard Bud Willis say, "The best way to get rich quick is to get rich slow." Bud is a retired Partner with J.C. Bradford, and Company. He is also a successful author, and a dear family friend. He also said recently, "I made my money real slow, and I plan to spend it even slower."
https://www.biblio.com/bud-willis/author/774821
Start investing early, and time and interest are on your side. Start later, and your results are limited.
The rule of 72 is a simple way to calculate how long it takes your retirement to double. Divide 72 by the rate of return you expect on your investments. Are you anticipating an average of 9% return? 72 / 9 = 8. So your retirement should double every 8 years. You can also see what rate of return you have to have to double in x years. Example...I want my retirement to double every 6 years. 72 / 6 = 12. The answer is 12% returns create a doubling of your investments every 6 years.
In step five, about Market Timing, I mentioned there might be an exception. My friend Tim is thrifty, and stays focused on his retirement. He builds up cash in savings for new investments. This is over and above his regular retirement. This is the one time that market timing may be ok. Tim took some of his extra savings out in the summer of 2020, as COVID and the fears surrounding the virus dropped the value of stocks by 40%. With the guidance of an experienced Fidelity broker, he made new investments. In the last 8 months, has been quite pleased with the results. Know that investing a lump sum is a gamble, and if you can win big, you can also lose big.
More details on the Rule of 72:
https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/rule-of-72-double-investment/
SEVEN. Don't blink! Keep your eyes on the retirement prize. Are you getting returns beyond what you expected and are ahead of schedule? Don't Blink! Or maybe your investments are lagging behind the market averages, and you want to just give up. Don't blink!
Stick to your principles, It is a long term process, and you have to keep doing steps 1-6 above. Get some professional advice. Keep learning. Stay on track. Talk to some trusted friends about your goals and fears.
A nice article from Kiplinger's about staying the course in good and uncertain times:
Summary...
You need a boat (retirement plan)!
Make the most of the plan that is available to you. If you don't have one, talk to a Professional!
Learn the basics, and get started, Now!
Take the mystery out of Social Security.
Embrace dollar cost averaging. Don't try to time the market.
Time and interest are your friends. Understand the rule of 72.
Finally, Don't blink! Ride out the rough times and keep investing. Do all you can to retire with some dignity.
History tells us that economic tides will rise and fall, In the long term it will rise.
JFK was right...A rising tide does lift all the boats!
More details on JFK's economic policies, and the context of the phrase above. Interesting that he cut the personal and corporate tax rates to help the country recover from the 1958 recession.
https://www.jfklibrary.org/learn/about-jfk/jfk-in-history/john-f-kennedy-on-the-economy-and-taxes
More good stuff about JFK...
Will you have enough to retire? This site has a calculator to see if you are on pace to retire with dignity.
https://www.nerdwallet.com/investing/retirement-calculator
We are living in strange times! Stimulus checks from our government have become the norm, even expected. Some people may need this to survive. Most of us already have "survival" covered, and the stimulus checks are extra money. What do you do with the extra money? Blow it on something shiny? Save it for a rainy day or taxes? Or maybe invest it for the future? This extra money can be the down payment on that boat JFK was talking about. Build a boat, chart your course, and be ready for the rising tide!
** Disclaimer- I am not an investment advisor! I have had some folks guide me along the way, and teach me about investments. More importantly, I learned how to think and learn for myself. It is with that independent spirit, and the desire to do better, that I offer you the above!