Once upon a time, there was a person (we’ll call her Sally) who was wondering what to do with $416.67/mo (or $5,000/year). It could be spent any way she wanted…a car, nice dinners, concerts, new toys, computer, etc. These all looked good, and sounded even better. They also definitely satisfied her desire for instant gratification. But she continued to look at her options. One evening, while drinking some wine with her friends, the ladies discussed how they planned on using their $416.67/mo. The first friend, decided to use her $416.67/mo. for lavish spa treatments—very comforting indeed. Another colleague bought a new car—to ‘roll’ in style. And yet another friend decided to eat out 3-nice dinners each month…because she “deserved it,” and had a deep understanding and respect for culinary expertise.
Finally, after some thought, and at the encouragement of her CPA and Financial Advisor, Sally found one—an IRA!! The IRA (Individual Retirement Account) became her new favorite thing. At first, she was skeptical and was worried that she could lose money. While this is true of any investment inherent of risk, she continued to feed it each month, every month, without regard of what was going on in the world. Since the Internal Revenue Service (IRS) allowed her some tax advantages with this new investment, she was even able to initially lower her taxes by more than a $1,000/yr. And so, she continued to feed, care, and nurture this new ‘thing’ up to the maximum allowable amount of $5,000/yr. This went on for years.
And after a while, she was so used to the systematic monthly contributions that she actually forgot about them. If fact, the only thing that reminded her of this contribution was the quarterly statements she received from the investment company.
Many years later (25-years, to be exact) when she and her friends got together for a reunion to remind them of the good old days, they talked about how much they had enjoyed that $416.67/mo. indulgence. The friend who had bought a car was on her 5th new car and still enjoying the “luxury” of driving a new vehicle every 5-years. Her car was nice, to be sure, but it wasn’t anything special. The posh friend had enjoyed going to “the spa” every two-weeks to refresh and help her overcome the stresses in her life. And the friend who ate nice dinners 3-times a month knew nearly every head chef on a first name basis in Los Angeles, and could recite the menus on demand. Finally, Sally (respectful of her friends’ choices and results) gave the following recitation:
“For the past 25-years, I drove decent cars that got me to where I wanted or needed to go, and they got me there in comfort. I occasionally indulged in a spa treatment for my birthday, and I really looked forward to it each year—as it really was a special event. I also took a cooking class at the local community college and learned ‘first hand’ how to pull together a Martha Stewart® menu right from the limited offerings in my fridge. They weren’t gourmet meals by any measure, but my family and I enjoyed my creations. “
Sally continued. “Finally, I fed my IRA $416.67/mo. every month without question. It wasn’t exciting, nor could I show it, feel it, touch it, or enjoy it. I was investing in a blend of equities (domestic and foreign), and covered nearly every sector of the market. I averaged only 8.2% per year, which was ‘OK,’ I guess. I saved $1,000’s each year by deferring my taxes, and now I have a little more than $409,000 saved up for my retirement.”
With her friends’ mouths agape, and the sound of wine glasses slipping to the floor, Sally didn’t have to say anymore.
Can you relate to this story? Do you want to? We can develop a plan to put you in “Sally’s position.” Let me know…my door is open!
*Example used as illustration only. It is not indicative of any particular investment, and actual results will vary.