My 5 Golden Rules To Safely Build or Preserve a Substantial Nest-Egg
Our global economy remains locked in a period of wild swings and uncertainty, implying grave risks even in the best of markets. In this report, I show you how to avoid and control the risks.
Golden Rule #1
Keep your priorities straight:
Aim first for savings and capital preservation, second for growth, and third for speculative profits.
People often ask me: "How did you start building your own nest-egg."
My answer: I began when I was nine years old; and at that early stage in my life, I did it exclusively by working hard and saving religiously.
I was too young to qualify for a newspaper delivery route. So I partnered with my older brother. He signed up; I did all the work.
But I also kept all (or most) of the rewards, putting away every penny, week after week, month after month.
If you are already retired with a substantial nest-egg, please pass this advice along to your children or grandchildren. Then take advantage of the advice I outline below for capital preservation (steps 4 through 6, below).
But if you do not yet have a substantial nest-egg, you must not skip over this critical aspect of wealth building. Even with today's low interest rates, you will be pleasantly surprised to discover how much you can accumulate by taking some simple steps:
Step 1. Start immediately. If you do not have a savings plan in place, the sooner you begin one, the better. Even at today's low interest rates of just 2% per year:
As you can see, starting just 10 years earlier makes a huge difference. At age 65, Saver A has 49% more than Saver B. And when interest rates rise, the power of saving earlier will be magnified very significantly.
- Saver A, who saves $1,000 per year beginning at age 25, will have $60,402 at age 65.
- Saver B, who saves $1,000 per year beginning at age 35, will have $40,568 at age 65.
Step 2. Be consistent. Figure out how much you can comfortably save each month. Many people aim too high, fail, and then give up. Better to aim low and then stick with it.
Step 3. Automate your savings. If at all possible, set up a program to save automatically. Your employer, your credit union or your bank can provide additional information.
Step 4. Stick with safe institutions. To preserve your savings or your nest-egg, make sure it is kept at a safe bank, credit union, insurance company, brokerage firm or money market fund. Wouldn't it be ironic and heartbreaking if, after all your diligence and care, your accumulated savings are threatened by a financial failure or mishap? To help you avoid that kind of disaster, we provide you with lists of the weakest financial institutions in America at www.weissratings.com. Plus, for ratings on credit unions, visit www.veribanc.com.
Step 5. Use Treasuries. Seriously consider my favorite savings vehicle: Short-term Treasury securities or Treasury-only money funds, despite the low yields they currently offer. For more detailed instructions on our recommended savings plans and vehicles, see The Wise Investor's Guide to The Best Safety With The Most Yield, available free to all Safe Money subscribers, responding to our customer survey.
Step 6. Don't confuse savings with investments. Be sure to maintain a clear separation between the two:
- Investments inevitably expose your capital to some risk; savings are designed to protect your capital.
- Investments can be in stocks, stock mutual funds, or real estate that can go up or down. Savings should be limited to vehicles that are highly unlikely to go down in value. They prioritize the return of your money rather than the return on your money.
- With investments, it often makes sense to time the market. With savings, it usually does not. As I stressed above, consistency and regularity is more important than market timing.
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