This past week was a good week. Between Larry Summers pulling out as a candidate for the next Fed chairman and the Fed announcing it’s not tapering yet, the stock and bond markets soared, which pushed our net worth above a milestone.
The time span between each milestone is going shorter and shorter, because of (a) inflation; and (b) investment returns on a larger and larger balance. If you save $20k each year increasing by 3% inflation and the investment return is 6% per year, it will take 21 years to reach the first $1 million, but it will take only 8 more years to reach the next $1 million, and another 5 years to reach the third $1 million.
Once you get the snowball going, it will roll by itself.
I also read these good articles this week:
Portfolio Size and Asset Allocation by Age by Michael at Financial Ramblings
On average older workers have more money in their retirement plans and they invest more conservatively. No surprise there. Michael pointed out that younger workers invest more conservatively than Vanguard’s target date fund for their age while older workers invest more aggressively than the target date fund. Interesting.
You Can’t Control When You’re Born… Revisiting Sequence of Returns Risk by Wade Pfau at Wade Pfau’s Retirement Researcher Blog
This is fascinating. You can do exactly the same thing and end up in different places: accumulating either 3 times your salary or 28 times, all depending on when you were born. Born only one year later, that 28 times becomes 17 times. Read Professor Pfau’s solutions for this problem.
How to choose a target date fund that’s right for you by Steve Vernon at CBS MoneyWatch
I think a target date fund is great for most people. Even if you just take the one by the year you are planning to retire, it wouldn’t be too far off. Use that as the starting point. Improve upon it as you gain more knowledge.
Make-up of Non-Bank Customers Changes at Squared Away Blog
Nicole isn’t using the best products on the market even though she prefers not to have a bank account. Paying $2 to cash a $150 check and turning around to buy a prepaid card for $4.95 is very inefficient.
Objective Opinions of Investments Hard To Find by Scott Burns at AssetBuilder
They are hard to find because people capable of rendering objective opinions want to make a living for doing so and their customer acquisition cost is too high. If they need 30 hours of marketing for you to find them and convince yourself that they are the right person to give you the objective opinion and another hour to actually do the work, you must pay for 31 hours, not just the one hour of actual work.
[Photo credit: Flickr user net_efekt]