Long ago, in a galaxy far, far from, I entered my employer's pension saving plan. Five percent of each paycheck entered a lot of funds. For the first few months, I didn't pay much money for my money. It wasn't that much, anyway. But then the stock market noted the news, as Dow Jones continued to record new record increases.
Wait a minute I thought. I wonder how it affects my savings?
So I looked at a quarterly report and saw that my little nose egg had received £ 250 (about 330 USD) all by itself. Who did I believe? It's free money to do nothing! I wish someone had told you about this before!
Here are all savings and investment advice. I wish someone had told me at the beginning of my career.
It is a guide to saving for retirement if you are just a normal person, especially if you are in the 20s and this sounds too complicated.
I can't urge you to sign up and start now. Especially if you are in your 20s. Not saving in the 20s can cost you hundreds of thousands when you beat your 60s. (There is a good theoretical example of why it is here.)
Don't wait a decade for money to fall from the sky.
When you are at the beginning of your career, it feels like you just don't get paid enough to save, and maybe you can wait until you're in your 30s. Wrong. Successful people make their savings to assets. Do it now.
Learn to say "yes" to free up money.
Pension plans protect your money from tax. (In the US, they are called 401 (k) plans, in the UK they are private pension plans. They are basically the same.) Every SEK 1 you save in a pension plan is SEK 1 you hold without paying tax. Every £ 1 you take as cash in your paycheck is taxed and you lose that tax. If you do not save in the pension plan you actively choose to lose money .
If you can only handle 1% you do it.
Saving action ] gets you into the habit to save, and that is important because you will have to do this for the rest of your life. If you make it early in your career, you will receive an early compositional demonstration …
Welcome to the miracle of composition!
When you start saving, you will notice how quickly profits are compounded, and that is where even more free money comes from. (19459018) teach you to say yes to free money!] If you put £ 1000 into an investment fund and did nothing else it would double in value in 12 years, provided you got an average return of 6% (that's the rough historical average for S&P 500).
This is twice as much money to do nothing:
The gains are much faster if you save every month.
The following diagram shows someone who saves 1,000 SEK each year in monthly installments for 12 years. It is £ 83 each month. This person gets a 6% return. Overall, they will have saved SEK 12,000 of their own money. But the winnings have strengthened it to £ 17,413 – not to do anything!
You should strongly consider saving 15% of your salary.
If you save less than 10% … uh, good luck with that.
Even if the market crashes, you still get to make money.
If the market crashed and your pension savings lost 15% – which literally just happened in December 2018 – Your tax-free savings would still be "ahead" of the money you took in your payroll tax if your paycheck is taxed at 20% or more.
Both do not matter when things get rough.
The market goes up and down. A few years you will lose money. When – and when not about – your retirement savings go through a market crash like 2000 or 2008, it will be the sharpest economic experience in your life. Don't run out.
Market crashes make you richer too.
When the markets go down, the price of assets becomes cheaper and your paycheck therefore buys more of them. When the markets go up again, you will be the proud owner of many bonds and stocks that you bought at the bottom of the market, and they will get value at high speed. This is called "dollar cost average", which means that you pay on average less than all others for stocks / bonds over time. As the market rises again, you will be amazed at the mix / rebound effect, and you will feel like a rich genius not to chick out.
It will tighten your perspective.
It is healthy to personally experience how markets
choose an S & P 500 index ETF with the lowest fees .
Most fund managers fail to hit the market. The market as a whole goes well in most years. If all you do is dump 15% of your salary to S&P for 20 years and literally do nothing else, you will probably be ahead of the match. S & P is a basket of 500 shares by American companies, and they have international business – so you are fully diversified regionally and in the case of large, secure companies. All S & P 500 index ETFs are basically the same (they are on autopilot), so the key is to choose the one that has the lowest fees.
Fees are boring but important .
Take a look at this chart (below). The blue investor received an annual return of 6%. But the red investor decided to join a similar fund, except that it had a larger annual fee. (In other words, blue got 6% return and red got 5%, after fees). Look at the difference over time:
- Red's profits are SEK 188 less than blue. In a £ 2,000 portfolio, £ 188 is a significant amount.
- Red paid fees that increased to about 20% of the original stake.
- Red yield was 9% worse as a result.
And that's just a deliberately simple one-time investment of $ 1,000, with interest paid annually. If red and blue had invested every month and the interest was paid each month (that is usually), then the blue profits would be much larger and red losses even worse.
Millennials and Gen-Xers were fired, started in the 1990s.
At the end of the 1980s, companies ceased to offer traditional defined benefit pension plans that provide a guaranteed wage for life. It was to the detriment of everyone who entered the labor force after that time, both in the United States and the United Kingdom. To give you an idea of how big a ripoff this was – how much money we all lost – read this. What replaced them is "fee-based" plans, as the ones I discuss here. They are not as good but they are probably all you have.