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The Value Of Increasing A Young Investors Savings Rate
What seems like a rather simple concept of setting aside money for long-term goals rather than short-term consumption is in fact difficult to achieve. To calculate a simple representation of your saving rate, divide your total savings by your total income. According to the Bureau of Economic Analysis the United States, saving rate was at 4.8 percent as of December 2009. In order to see the benefit of increasing your savings rate consider the following example. If College Saver One saves $2000.00 per year and received an eight percent annual return after twenty years he or she will have $100,845. College Saver Two saves $1,776.5 per year and receives a nine percent annual return for the same twenty year period, he or she will also have $100,845 This means at this savings level, annual return and time period a one percent increase in rate of return per year is equivalent to $223.50 per year in additional saving. Personally I feel that it is in the best interest of my wealth to strive to increase my savings rate rather than adding more risk to my portfolio. Often while perusing personal finance and investing blogs intended for young investors I see authors encouraging and recommending financial behavior that is extensively risky. While I am a firm believer in respecting others decision to use alternative means of building wealth, I cannot help but cringe at some of the recommendations offered. I personally do not believe that extensive trading and the use of leveraged funds or margin accounts is necessary for the average young investor to build wealth. In fact I tend to believe that these practices can instead be damaging to the individuals long-term wealth. I am not indicating that we should construct our portfolios out of certificate of deposits and government bonds just that we assume risk in a manner that is calculated and well-planned. Article Directory: http://www.articledashboard.com |
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