There is a widening gap between what we think we know about investing and what we actually know.
That's one of the take-aways from the latest National Financial Capability Study—in which people were asked to rate their financial knowledge. Nearly three quarters of the 25,000 American adults surveyed awarded themselves above-average marks.
But here's the kicker: When given a simple five-question quiz designed to test their knowledge of basic financial concepts encountered in everyday life, only 39% of respondents were able to correctly answer at least four questions.
In short, we don't even know what we don't know—and the problem is getting worse. This is worrisome because, in order to make sound investment decisions, we need at least a basic understanding of some key financial concepts.
Take compounding—the process of earning money not only on your original investment but also on your accumulated earnings.
Fully one quarter of those surveyed for the Finra Investor Education Foundation—an offshoot of the regulator of securities firms, the Financial Industry Regulatory Authority—couldn't say whether $100 deposited in a savings account earning 2% interest per year would grow to more than $102, less than $102 or exactly $102 after five years.
(Answer: $110.41—$100 grows to $102 the first year, $102 grows to $104.04 the second year, and so on.)
Compounding can be your strongest ally when building a nest egg, but it also can work against you—so you need to have a handle on it. Here are three ways it can make or break your portfolio:
Traci Deberko
"That is the magic of compounding and why it really pays to get started saving early," says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial.
Getting a head start on your retirement savings means you can put away less money per year than if you'd started later, says Ms. de Baca.
Investors end up paying all manner of fees for the privilege of letting Wall Street invest their money. The longer the investment period, the bigger Wall Street's take.
Say your portfolio earns an average annual return of 7% before fees and 5% after fees. After 10 years, $10,000 would grow to $20,000, but you'd net closer to $16,000, with the balance going to fees. That's 80% of the pot for you, 20% for Wall Street. After 40 years, Wall Street has pulled ahead, keeping $80,000 for itself and leaving you with just $70,000.
So keep costs in check. An easy way is to buy and hold a basket of low-expense, market-tracking index funds.
Assuming both withdraw 7% a year, adjusted for inflation, the bull-market retiree would have more than $450,000 at the end of 10 years and the bear-market retiree less than $200,000.
For this reason, Jimmy Lee, managing partner at Strategic Wealth Associates, recommends new retirees set aside one or two years of living expenses in money-market funds, short-duration bond funds or even whole-life insurance that could be tapped for income during a market swoon
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That's one of the take-aways from the latest National Financial Capability Study—in which people were asked to rate their financial knowledge. Nearly three quarters of the 25,000 American adults surveyed awarded themselves above-average marks.
But here's the kicker: When given a simple five-question quiz designed to test their knowledge of basic financial concepts encountered in everyday life, only 39% of respondents were able to correctly answer at least four questions.
In short, we don't even know what we don't know—and the problem is getting worse. This is worrisome because, in order to make sound investment decisions, we need at least a basic understanding of some key financial concepts.
Take compounding—the process of earning money not only on your original investment but also on your accumulated earnings.
Fully one quarter of those surveyed for the Finra Investor Education Foundation—an offshoot of the regulator of securities firms, the Financial Industry Regulatory Authority—couldn't say whether $100 deposited in a savings account earning 2% interest per year would grow to more than $102, less than $102 or exactly $102 after five years.
(Answer: $110.41—$100 grows to $102 the first year, $102 grows to $104.04 the second year, and so on.)
Compounding can be your strongest ally when building a nest egg, but it also can work against you—so you need to have a handle on it. Here are three ways it can make or break your portfolio:
Traci Deberko
Time
You invest $200 a month for 40 years, and your neighbor invests $400 a month for 20 years. You both invest the same $96,000 overall. But your investment grows to $500,000, assuming a 7% average annual rate of return, compounded yearly, while your neighbor's grows to just $200,000."That is the magic of compounding and why it really pays to get started saving early," says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial.
Getting a head start on your retirement savings means you can put away less money per year than if you'd started later, says Ms. de Baca.
Costs
One thing that can "overwhelm" the magic of compounding is the "tyranny" of costs, as John Bogle, founder of Vanguard Group, likes to put it.Investors end up paying all manner of fees for the privilege of letting Wall Street invest their money. The longer the investment period, the bigger Wall Street's take.
Say your portfolio earns an average annual return of 7% before fees and 5% after fees. After 10 years, $10,000 would grow to $20,000, but you'd net closer to $16,000, with the balance going to fees. That's 80% of the pot for you, 20% for Wall Street. After 40 years, Wall Street has pulled ahead, keeping $80,000 for itself and leaving you with just $70,000.
So keep costs in check. An easy way is to buy and hold a basket of low-expense, market-tracking index funds.
Returns
As anyone who retired at the start of the last bear market can attest, negative returns early in retirement can drastically shorten a portfolio's longevity. Two investors each retire with a $500,000 nest egg that earns an average annualized return of 6% over 10 years. One retires into a bull market, with positive returns in the early years and then losses. The other retires into a bear market and sees gains in later years.Assuming both withdraw 7% a year, adjusted for inflation, the bull-market retiree would have more than $450,000 at the end of 10 years and the bear-market retiree less than $200,000.
For this reason, Jimmy Lee, managing partner at Strategic Wealth Associates, recommends new retirees set aside one or two years of living expenses in money-market funds, short-duration bond funds or even whole-life insurance that could be tapped for income during a market swoon
========================================================================================== Explode Your INCOME. Make more money with a powerful online Home Business. You can earn a Full time Income on a Part Time basis while keeping your current Job. When you Love the Idea of Network Marketing and Residual Income, but HATE Cold Calling & having to pitch your Friends and Family... You Earn cash while Surfing the Web. Earn cash for Referrals with Trusted Programs. Check it out:
1. You’ve got to have a website or a blog, of course the easiest and most practical Way to Promote Referral Items.
2. Use Valid Email Address.
3. Signing up free for an account with a payment processor such as "Payza".
4. With this in place, join various network sites hosting merchants' products/services. There's usually no charge. You join; you get your own referral link code, so that you can send people to the destination with your own code branded into it. This way, the merchant can determine that the sale was originated by you and you earn a commission.
5. Choose from the more popular sites for information and/or hard products or services. Many of the products or services offer very generous commissions.
6. You can also examine the links that appear here and join the sites.
We have spent the time and put in much effort to create for you something extraordinary! Go to the websites, relax, watch the videos, and get ready...they Can Easily Make you Financially Independent and many more!. You will have more reliable ones as you continue to hang on this blog
7. Once you joined, just do a search in the network company to find your favorite product/service.
8. Grab your code and promotional creative, text, banners, etc.
9. Place the link on your website or blog.
10. Go ahead and promote your website or blog. You should get many visitors to your website or blog in order to be able to get enough sales.
11. Do a review of the product/service of your website and make a recommendation. A very good way is to review products/services and point out their pros and cons and rate them according to their quality.
12. Even better is to have your own experience with that product/service and share it with your visitors.
13. Only a small number of your visitors are likely to follow your advice and buy and this also provided that you've done an honest and good job promoting it.
14. You should take a look from time to time in the stats in your account at the network company to see how you perform. The good thing is that you don't necessarily have to deal with the merchants. You can just join a reliable and reputable network hosting the products/services and doing all the work for you.
Click here to check out for some of the Best “Get Paid to (GPT) sites.
So what are the risks? With any new start up company you are at risk if the company doesn’t make it. Plain and simple. If you focus on promoting only one product, service, affiliate program or business opportunity and it doesn’t sell or the company goes down – you have nothing! But when you create multiple streams of income – if one of the streams dries up – it’s a bummer but not catastrophic.
Read The Myth of Easy. Why You Don’t Want Easy Online Marketing
Here, we will always preach the power of PRODUCTIVE LIVING and of creating MULTIPLE STREAMS OF INCOME as a way to help you make for yourself a large, stable, diverse, passive residual income with less effort and less cost. Earn instant multiple income streams daily. Keep coming back to the blog as we keep on identifying the best methods, unique strategies, effective techniques to earn unlimited income from paid to click, surf, read, promote and sign up excellent passive income sources. These are revolutionary ways to make money online. We select, review and recommend to our associates the best PTC paying sites. In a nutshell, we are helping thousands of people worldwide become their own boss from their own home. The best part is No matter how much experience you have online you can make money month after month! So, Stay subscribed for more-make-money tips & tricks...
Are you interested in generating income from Transport Partnership Click here to check it out!
My Web Browser pays me! Does yours pay you? Click here to check it out .
Join our Facebook Page because we want to connect with all of you as the individuals you are, rather than random statistics and figures on our blog counter. With this page, we hope to know all of you better as readers, individuals and friends. At the moment, there are over 11000 amazing Fortune Fair readers on the page.
If you’d like to give us a chance to know you better, we sincerely invite you to connect with us on our Facebook Page and Follow us on Twitter. We’ll greatly value your friendship and make the effort to read every message or tweet and reply where we can. Click here to refresh yourself.
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