Monday, July 11, 2011

If you’re focused on saving money for retirement, your focus is on the WRONG thing!

If you’re focused on saving money for retirement, your focus is on the WRONG thing!

The most unfortunate and expensive mistake anyone can make in planning for their retirement is thinking their focus needs to be on saving money. Yes, I’m quite serious about this! I’d understand if you were a bit perplexed about my rigid insistence on this, because it does run completely counter to the advice of most financial advisors. “All you have to do is save, save, save the heck out of your income!” Once you do that, you will be set for retirement, right? WRONG!

I sincerely hope you will take the necessary action after reading this column to separate yourself from the masses who are plagued by the inadvertent cycle of poverty this erroneous save-save-savings advice creates.

Let me direct your attention to a very interesting dilemma. Wouldn’t you agree that almost everyone saves money toward retirement? I mean, that’s what American workers are trained to do. Yet somehow, only a tiny percentage of people are able to achieve a comfortable retirement – financially speaking – which means that the majority miss the mark. While various reasons may account for this unfortunate situation, I maintain, from my years as an eyewitness into people’s retirement decisions and motivations, that saving too little money is NOT one of them.

You see, the key many future retirees are missing is that the most important thing is not that you save money, but WHERE you save it. Think about it this way: If the container into which you are saving has a leak, most of your savings will eventually drain out. In other words, someone else putting their savings into a container with no leaks will keep all of their savings and likely end up with much more than you, in spite of the fact that you might have “saved” a lot more money.
It’s all about WHERE
you’re putting those savings!
Let me use this hypothetical scenario to prove this point which continues to elude so many, including so-called financial advisors. Assume it is January 01, 2007, and your investment account has a balance of  $100,000. Let’s also say that you’re investing the traditional way, whereby you can make unlimited gains or losses. Let’s call this Strategy X. Let’s also assume that the S&P 500 Index is where you placed your investment. What actually happened is that the S&P 500 gained 3.53% in 2007; lost 38.5% in 2008; gained 23.5% in 2009; and again gained 12.8% in 2010. So your investment made gains three out of the past four years. In spite of those gains, your account’s balance at the end of 2010 would have been just $88, 699.

Here’s how that math works out:
  • The beginning $100,000 gained 3.53%, growing to $103,530 in 2007.
  • Then it lost 38.5% and ended 2008 with a balance of $63, 671.
  • Then it gained 23.5% and rose to $78, 634 in 2009.
  • It again rose in 2010 by 12.8% to $88, 699.
Isn’t this exactly how nine out of 10 Americans are investing their hard-earned money?

Now let’s turn our attention to a little-known yet incredibly powerful approach which we will call Strategy Y. Under this strategy, instead of putting your money directly into the stock market, you will link it to the growth in the same S&P 500 index that Strategy X invested in. However, we are going to cap your gains at 10%, but you will be guaranteed a minimum interest of 0% , so when the S&P 500 plunges, you won’t lose anything. To prove my point beyond all doubt, let us start by funding Strategy Y with $80, 000, a full $20,000 less than the $100, 000 with which Strategy X began their investment. Keep in mind, this is not a “fair” start, because Strategy Y has 25% less money to start with! 

Now pay very close attention to this mathematical breakdown. This $80,000:
  • In 2007, you will gain 3.53%, increasing to $82, 824.
  •  In 2008, since the S&P 500 lost money, you’d earn 0%, but keeping the same $82, 824 balance.
  • In 2009, your gain is capped at 10% (although the index earned 23.5%), leaving you with an ending balance of $91, 106.
  • You’ll gain another 10% in 2010 (out of the index’s 12.8% actual gain) and end at $100, 216.
At this point, I don’t need to say much, do I? If I had told you earlier that $80,000 in an account with gains capped at 10% would overtake a traditional account with $100,000, you might have thought I was nuts. 

There may be some who will try to argue that I used only the past four years in my analogy (January, 2007-December 2010), and should have used a much longer time period for my example. The problem with that argument is that it fails to recognize the fact that it takes only ONE dip to ruin everything, when it comes to investing. Here’s my challenge for those who hold this view: Why don’t you crunch the numbers between these 2 strategies over whichever time period you deem reasonable – and get ready for the surprise of your life.

So WHERE is your nest egg saved? Is the container that’s holding your life savings reliable? Please don’t take a chance with your retirement!
Contact a financial professional from Laser Financial Group today to schedule your complimentary consultation. Find out NOW whether your retirement fund container is sprouting leaks, and what you can begin doing today to fix it! 301.949.4449 or

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