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___________________________________________________
Example:
Assume
you start out your career making a salary of $20,000 per year. To
satisfy the 10% rule, you must invest $2,000 per year. You could simply
set up a mutual fund with an automatic deposit of $166.66 per month
(i.e., $2,000/12 months). Ten years later, when you are making $40,000
per year, you should invest $4,000 per year ($333.33 per month). Note,
however, no more than $2,000 can go into your IRA each year. This
investment profile is shown in Figure 1.1A below.
Figure 1.1A Annual
Deposits
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A
Brief Primer on Reading Graphs
A simple graph represents two numbers
associa-ted with one another (one on the horizontal axis and one
on the vertical axis). In Figure 1.1A above, for example, the
graph shows that $166.66 (read from the vertical axis) was
invested each month for months number 1 through 120 (read on the
hori-zontal axis). For months 121 through 360, $333.33 was
invested each month.
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Assuming you never
increase your salary again, you will have $349,199 after 20 more years
(assuming untaxed 8% annual rate of return compounded monthly). The
growing balance of this investment profile is shown in Figure 1.1 B
below.
Figure 1.1B Growing
Balance Using the 10% Rule
___________________________________________________
Unfortunately, most
people do not know the 10% rule,
and even worse, many of those who have heard the rule think they can not
afford to use it. The fact is you can’t afford NOT to use this rule.
If ten per-cent is too hard, at least start with one percent now; then
increase it by one percent every six months. I promise you will
eventually get so used to investing this money, you will not even miss
it.
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Calculate
Your 10% Rule Amount
1. Enter
your gross salary income:
______________________________________
2. Multiply
line 1 by 10% (i.e., 0.10):
______________________________________
3. Divide
the amount on line 2 by 12:
______________________________________
(Line
3 is the amount you need to invest monthly to follow the 10%
rule.)
4. Divide
the amount on line 2 by 26:
______________________________________
(Line
4 is the amount you need to invest every 2 weeks to follow the
10% rule.)
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Do you have the
time and expertise to research, analyze, and select stocks? Do you have
time to monitor them? Most people these days don't. What if you could
reap the benefits of stock and bond investing without investing your
time as well. If you have looked into investing in the past, you
probably already know that stocks have significantly outperformed
bonds, CD's, gold, etc. on average throughout the last seventy years.
And you probably know, if you invest in safe,
low-return investments (e.g., savings accounts, money market accounts,
CD's, etc.), inflation disintegrates your money's buying power over
time. For example, if you put your money in a savings account earning
four percent, but inflation is averaging five percent, you are actually
losing one percent per year in terms of what your money can buy even
though the dollar amount in the savings account goes up. So, how do you
overcome all this? One answer is automatic investing.
Automatic
investing is defined as any technique where the investor
automatically adds to or withdraws from an investment on a periodic
basis without regard to the current trend of the investment. If you are
into personal financial management, you probably think I am referring
to dollar cost averaging. In fact, dollar cost averaging is one of the
three techniques of auto-investing presented in this book. The three
techniques of automatic investing discussed in this book are briefly
introduced below:
Dollar
Cost Averaging - Dollar cost averaging is the periodic investing of a
specific amount of money regardless of the share value of your
investment (e.g., mutual fund).
| Example:
You could decide to invest $25 per month in a specific mutual
fund regardless of what the markets are doing.
|
Asset
Allocation - Asset allocation is the periodic adjustment of money
between multiple investments to maintain a specified percent-age of the
total in each vehicle.
| Example:
You could select two mutual funds and decide to maintain 50% of
the total balance in each fund. Every six months (or whatever
period you choose), you adjust the balances so half (i.e., 50%)
of the total is in each fund.
|
Would You Invest 10
Minutes/month To Triple The Performance of Your Mutual Funds?
Download your own copy of GROWTH & INCOME now &
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