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 .