Money Magazine has recently published a list of 25 things that they claim will make you rich. Although I think that this title is total fluff – stuff that catches a readers attention to get them to buy the magazine – as it covers things like never hiring a roofer who is going door-to-door. Sure that is an important in terms of ensuring you don’t get ripped off, it certainly won’t make you rich.
That being said, I went through the list and have highlighted the ones below that I think are important to investing and growing your investments assets.
1. All else being equal, the best place to invest is a 401(k). Once you’ve earned the full company match, max out a Roth IRA. Still have money to invest? Put more in your 401(k) or a traditional IRA.
The key thing about this “rule” is taking advantage of the company match. If your company offers, it then take advantage of it. It is like getting free money to invest. The other important thing about this “rule” is the focus on tax free growth – using programs that allow you to let your investments grow tax free.
2. Invest no more than 10% of your portfolio in your company stock – or any single company’s stock, for that matter.
Remember all those poor souls who worked at Enron who had whopping amounts of money in the company’s stock – where is that money now? Diversification is important and not being concentrated can help offset risk. However, there is a whole other mindset out there that says that investors should concentrate. I believe that this only works if you are very diligent about watching your investments. If you don’t, then diversify.
3. The most you should pay in annual fees for a mutual fund is 1% for a large-company stock fund, 1.3% for any other type of stock fund and 0.6% for a U.S. bond fund.
Keep your costs of investing low. If you are in Canada like me, then you are totally getting hosed on mutual fund fees. Buy only low cost index funds or mutual funds. Don’t believe the myth of you get what you pay for – it DOES NOT apply to mutual funds.
4. Aim to build a retirement nest egg that is 25 times the annual investment income you need.
Is 25 times the annual investment income you need the right answer? I don’t know. However, I believe it is extremely important to have a goal number that fits with your needs. The trick is figuring our what that number is.
5. If you don’t understand how an investment works, don’t buy it.
6. If you’re not saving 10% of your salary, you aren’t saving enough.
This is a pretty definitive statement, but the fact of the matter is that to retire with some sort of savings you need to be putting money away. The more you put away, the more you will have at the end (unless of course you don’t listen to #5 above).
Pretty good “rules” if you ask me.