Tags: Life | Lessons | Numbers

Life’s Untaught Lessons: It’s All in the Numbers

Friday, 30 Dec 2011 07:05 AM

By Bill Spetrino

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As someone younger than 50 who started with a small sum and achieved financial independence solely through allocating capital, I am astounded by the lack of financial literacy in our country.

Until recently, I blamed it on our educational system.

Let’s face it: Our high schools require you to study science, for example, although most students in the real world remember, or use, a small fraction of what they are taught.

There is no requirement that students learn the two most-important skills that every American adult will need at some point in their life, regardless of their race, creed, what city they live in or what profession they choose: budgeting your income and investing your savings in safe, high-yield investments.

Many people will argue that budgeting is basically common sense and that you just need to save more than you spend. Anyone with little or no education can understand that simple concept.
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Anyone who works 40 years and puts $5,000 in an Individual Retirement Account and their investment compounded 6 percent would have $773,810 at retirement and would be earning about $50,000 per year annually on their money. They wouldn’t outlive their money if they lived prudently.

Until two years ago, 6 percent was usually a no-risk, money market account rate that most conservative investors could expect.

However, if today’s 2 percent rates continue in the future, like many including myself believe, the same person will only have $302,010 and would be only be earning about $6,000 annually on their money, which could eventually deplete their retirement nest egg.

However, if you saved the $5,000 and compounded your money in safe, high-yield investments that earn 12 percent annually, your total would be double the 6 percent, right?

Wrong.

In fact, because of the miracle of compound interest and the reinvestment of dividends, your estate would be worth $3,835,455 ($3.8 million) and would be earning you more than $450,000 annually without touching your principal.

Now that is preparing for retirement, isn’t it?

Just imagine if you were able to save more than that each year or you could compound your money at even a higher rate?

Now do you understand why it is crucial to learn how to compound your money at higher rates?

As many of you know, I write a popular newsletter, and its safe high-yield investments have so far compounded an investor’s money at a much higher rate than 12 percent annually.

Folks, your children and grandchildren don’t possess your life experiences and wisdom to learn this on their own.

They will spend thousands of hours in classes and thousands of dollars on education, which won’t teach them this crucial skill set.

Make sure you share this wisdom with them and start out 2012 on a positive note.

About the Author: Bill Spetrino
Bill Spetrino is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the Dividend Machine. Discover more by Clicking Here Now.



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