If a person invests $50 per month and can achieve an annual return of just 8% from the time they are 21 until retirement (age 65, 44 years) they would have over $230,000.00 Obviously, three things in this scenario are affecting the total: time, input, and return. Many people would like to retire even before 65, so no change there. But, as a person earns more over the course of their career they can definitely contribute more per month. The power of compounding interest lies with time and yield. If you have a bigger annual return your potential nest egg grows substantially. In the above scenario, lets see how the total changes if we increase the yield. A 9% return would give over $314,000.00, A 10% return would give over $430,000.00, And a 12% return would give over $814,000.00. As you can see every percent changes the picture drastically. With leverage and value averaging, you can easily achieve a 12% annual return (or more!) over the course of your life.
Personally, I like to use the proshares 3x leveraged ETFs. I have been utilizing UMDD and URTY for the most part. UMDD is designed to give you 3x the daily return of the Midcap 400, while URTY is 3x the daily return of the Smallcap Russell 2000. These funds will give you a little more volatility than some of the other leveraged index funds, but the return over time should be greater. If you have only $50-$100 every month to invest, I suggest saving up and adding money only every quarter because there is a $7.95 fee every time you purchase. If you are starting with zero initial investment I recommend putting all your money into the same fund. Once you have built up a few thousand dollars I have a few ideas on how to provide less volatile returns. I have been using Fidelity for my investment portfolio. They provide a nice amount of investment choices, are relatively cheap, and easy to use. They also offer free iShares ETF funds for accounts greater than $2500. So, invest at least $150 every quarter in one of the 3x leveraged funds and you get the power of leverage with the security of dollar cost averaging.
When investing, it is always good to do your own research. Recently, I have been studying up on an investment strategy called value-averaging. One of the biggest proponents of this strategy is Jason Kelly. He is the author of a series of books entitled ‘The Neatest Little Guide…’ which outlines how to use the strategy. Jason also has a self titled website, jasonkelly.com. I have started using some of these techniques in my portfolios which I believe will substantially increase my returns over time. The key is the use of leverage. By using leveraged etfs, you can boost returns well above average. Because of the power of compounding interest, any incremental increase in return turns into massive wealth.
Thank you for visiting my blog, which I created to share my ideas and advice about simple investment strategies that can generate true wealth in your lifetime. Most investment advice is a mundane, re-hashed emphasis on diversification and anti-risk. For the most part, I want this blog to be about simple ways people can be successful with their money. Most probably believe that you have to be wealthy before you can even start investing. This is absolutely false, there is no better time to start investing than right now. I am a firm believer in paying yourself first, which is simply – give yourself a fraction of what you earn every month before you go out and spend it all. I find that people are very good at figuring out ways to make ends meet. And, most people will only accumulate so much debt. Once you start investing and saving, it will positively affect so many parts of your life. When people feel secure about their finances, they are better able to manage disappointments and hurdles that may have derailed them previously. My parents would always make knee-jerk decisions solely due to their financial burdens. They would apply a band-aid when surgery was absolutely necessary. For example – I have six brothers and sisters, I am number 3. I know I am number 3 because when we would go on road trips, my father would make us count off (how lame!). Well, when you have 7 children to feed you cut back in other areas… like transportation. When I was about 9 my parents bought a brand new Dodge Minivan that was this awful brown color. The problem was that the Dodge Minivan only seated 7, so my dad went to the hardware store and bought some 2x4s, plywood, and some nuts and bolts. He proceeded to drill holes through the floor and build an extra bench seat, complete with seatbelts. The ingenuity necessary to complete this aside, this was absolutely crazy. Thankfully, nobody ever crashed that minivan. My parents could not afford a more expensive vehicle that was designed to fit everyone comfortably, so my siblings an I suffered endless hours of bottom-numbing way-way-back seat rides. They made questionable decisions based on financial pressures, which does not have to be the case. America is the wealthiest society in the history of the world, and every citizen has the means and opportunity to build their own personal wealth. We just need to go and make it happen.
Here is to our financial and personal success!