Tuesday, May 01, 2007

It Pays To Be Stingy

We all know the importance of savings for the future. A dollar a day would have grown into $ 508,000 after 50 years. This assumes a 10.5 % annual return.

There are other ways to boost our retirement account other than cutting your expense by a few dollars a day. But first, you have to understand the importance of boosting just one percentage of your return. 1% does not seem much. After all, if you have saved a dollar a day, after the first year, your savings would have grown larger by $ 3.65. So, why bother, right? Wrong.

If you take your time to whip out your calculator and compute, the one percentage difference is a BIG deal. Instead of 10.5 % annual return, you can assume that you now achieve an annual return of 11.5%. While saving a mere $ 1 a day, how much your money would have grown after 50 years? The amount now is $ 730,000. 1% return will have given you $ 230,000 in extra money. Assuming that you will spend $ 100,000 per year on your retirement day, this extra 1 % will give you 2 more years of comfortable life.

Knowing that an extra one percent return is significant to your retirement account, here is several ways to achieve that.

Using a Limit Order. We are not day traders. But, that does not mean we should buy a company using market order. With lots of program trading out there, using market order might give you the highest price of the day. Looking at any publicly traded companies, it can fluctuate 1 - 2 %. in a given day. Furthermore, using limit order does not cost you extra. At Scottrade, both market and limit order costs you $ 7 per trade. There are several excellent broker comparisons website out there.

Learning Technical Analysis. Sure, this is the tool that are mostly used by day traders. But, in the short term, it has its use. There is no guarantee that you can buy at the absolute lowest price. But at the very least, you won't buy at the top. In general, it always pay to buy at major support and sell at major resistance. If you are not sure about this definition, you are welcomed to discuss it at our discussion forum.

It pays to be stingy. An extra 1 % would probably buy a new car by the time you reach retirement. Now, this is just a conservative estimate. I believe you can save more than 1% with all the volatile stocks out there.

0 Comments:

Post a Comment

<< Home