A Word About the Importance of Saving!

Here's a word about the importance of saving from Porter Stansberry of Stansberry & Associates.  
Porter is terrific about helping others learn about investing, I only wish I had run across him when I was younger. So take note! 


If you can teach your children one thing about money, it should be teaching them how to save and why it's important to do so. Share this example with them… and ask, "Who will end up with the most money at retirement?"

Saver No. 1 is a hard worker who understands the value of time and the importance of saving. He gets a job at age 16. Each year, he saves $2,000 – roughly 250 hours of work at minimum wage. That's roughly six weeks of full-time work in the summer, or 25 weeks of part-time work (10 hours per week) during the school year. Either way, it's not an unrealistic amount of money for an enterprising 16 year old to earn, while still having plenty of money for current spending.

Saving $2,000 per year becomes a habit, and Saver No. 1 does it every year. Even after he begins his career in his mid-20s, he simply continues to set aside $2,000 per year. He invests these savings in a conservative way. He opens an IRA account so his investments won't be taxed. He puts 40% of his savings into short-term, highly rated corporate bonds. He puts 40% of his savings into high-quality "dividend growing" stocks. And he puts 10% into gold. Simple.

His portfolio only produces modest returns. Over time, he earns about 8% a year – mostly by reinvesting his dividends and interest payments. He's not worried about getting "rich." He's just saving his money. And it's easy because he never saves more than $2,000 a year. He has plenty of money to spend on things he needs and wants – but he always remembers to save first.

By the time he's 40 years old, he's contributed $48,000 in savings to his portfolio. At that point, he calculates that if he continues to earn 8% a year on this portfolio and reinvest all of his dividends and interest, he'll have plenty of money for retirement at 65 years old. So at age 40, Saver No. 1 stops saving money. He's now free to spend all the money he makes for the rest of his life.

Saver No. 2 doesn't learn to save as a child and doesn't even get a job until after college. By that time, he's so busy buying things – cars, vacations, dinners at nice restaurants, clothes, houses, etc., he never can "afford" to save a dime.

He wakes up at age 40 and realizes he doesn't have anything in the way of a retirement fund or really any liquid savings at all. So he begins to save, and he does a great job. He's putting away $10,000 per year, every year. He knows he's got to play "catch-up." Like Saver No. 1, he invests conservatively and earns 8% a year. He reinvests everything, like Saver No. 1. By the time he turns 65 years old, Saver No. 2 has contributed $250,000 towards his retirement.

Guess who has a bigger portfolio at age 65? Is it Saver No. 1 who never contributed more than $2,000 per year and whose savings totaled $48,000 in his lifetime… or is it Saver No. 2, who saved more than five times as much money initially?

At age 65, Saver No. 1's portfolio is worth a bit more than $1 million. Saver No. 2's portfolio is worth $800,000.

The point is, if you're planning to take the safe and sure route to wealth – which is saving and compounding your wealth – it pays to start early. If you don't, you'll have to contribute large sums of capital to your plan. Or… you've got to discover ways of getting high rates of income…
 
If I could do one thing for every one of our subscribers, it would be to give them the confidence and the knowledge to buy high-yield corporate bonds – bonds trading at a discount from par. Yes, you have to know what you're doing to buy these bonds, but once you understand the secret to making these investments in the right way, you can easily and safely earn annual income in excess of 10% a year, every year.

In fact, once you've made money like this, you'll probably never go back to buying stocks again. I've written about the idea of buying discounted corporate bonds many times in the Digest over the years… so I won't use today's space to talk about them. I'll simply say: Please… develop the confidence and knowledge required to buy discounted corporate bonds. It will change your life. It did mine.

Now… despite my pleading… Many readers aren't interested in acquiring this skill. They prefer to stick with income investments they can buy with one click of the mouse. And that's fine… You can still earn terrific yields on your money with this strategy.