STEP 2— Set up a tax-advantaged Individual Retirement Account( IRA).
Get hold of this free and easy approach which allows you to trade in and out of investment securities with minimal costs. Majority of transactions will be cheaper than your favorite cup of latte at the coffee shop. Sometimes, commissions are even disregarded. Open up an IRA today if you still do not have one.
An IRA provides a viable investment instrument for creating wealth due to its deferred capital-gains tax as well as its tax-deductible annual contributions. In short, the government practically helps you become a millionaire while minimizing your income-tax expenses. At present, the minimum IRA yearly contribution is $ 5,500 annually($ 6,500 for 50 or older individuals), right within your ballpark.
You can also make contributions on a lump-sum basis or at regular periods. The latter is a great option for leveling out fluctuations in the investment portfolio, since prices tend to become volatile within the year. The outcome will be what is called ― dollar-cost averaging ‖ of your contributions. This strategy reduces the emotional stress in your decisions with respect to your savings.
Two down and only one more to go! You may celebrate at this point.
To show you clearly what happens: Simply investing $ 5,500 yearly for 30 years, or a total of $ 165,000 principal investment, will earn you $ 1,036,000 in the end.
This ― miracle ‖ is possible through the compounding power of money, since compounding can generate returns, which are then invested back in order to generate more income.
The figures used-- that is, $ 165,000 becoming $ 1 million-- are based on the actual yearly return of 9.5 % for the U. S. Stock market way back to the year 1927.
This simply means that on the long-term basis, investors who buy and hold on to securities that track the overall performance of the general stock market can gain a 9.5 % yearly return.
But you can even do better than that! You can actually turn that same $ 165,000 principal investment into $ 3 million within the same length of time. Yes, 30 years! No, within only 23 years, in fact!
How? There is a way to do it without any additional risk on your part. Are you really excited now? The third step is the key to gaining greater wealth at a more rapid rate. STEP 3— Relative Strength Investing gets you faster to your retirement goals.
The Relative Strength approach basically measures a security’ s performance in relation to that of another. Although there are various means of evaluating relative strength, the primary point is that a relative strength measurement can be done on any instrument.
Relative Strength, in short, can determine the parts of the general market which are strongest and those which are weakest.
This will allow us to see what is performing below par and, therefore, guide us to invest in the parts that are performing well, increasing the potential to gain greater returns. This is how we can accelerate even more the rate of compounding.
According to a research done by Dorsey Wright & Associates, momentum methods such as Relative Strength investing have overtaken the Total Market return by 4.6 %, as determined by an extensive track-record analysis.
Hence, from way back in 1929, instead of accumulating only a 9.5 % annual return, focusing your investment wholly on the best-performing portions of the market would have produced a 14.1 % return. Moreover, within that long period, the difference in yearly return— while appearing minimal— resulted in increased worth of a portfolio of over 66 times.