Goal-Oriented Investing
What's wrong with the average investor's strategy?
There are a lot of problems with how investors currently invest. I think the main issue is there's so much information out there. There are almost, if you can believe it, 18,000 different mutual funds available. For the average investor sitting at home, thinking, "I've got to create this allocation. Which of the 18,000 funds should I use in my account?" - It's just overwhelming. It's really very complicated, and what can happen is that people get very frustrated and they just give up. There's a better solution and the better solution is goal-oriented investing.
What is 'goal-oriented investing'?
Goal-oriented investing is a new take on investing. It looks at the old and says, "There's got to be a better way to do things." With goal-oriented investing, it has to do with goals. All of those things that you want to achieve and do and become, which you identified earlier, those are now goals. Toward each of those goals, my recommendation is to have separate investment accounts. You might have five, six, ten or twelve different investment accounts.
Is it difficult to manage multiple investment accounts?
It's actually really easy to open an investment account, to put money in and to take it out. What I've found with people who do goal-oriented investing is that maybe they open six or seven different investment accounts because they've got six or seven different goals. Let's say a year later, they've already achieved two of those goals; it doesn't mean they have to close the investment account. It just means now that their other goals maybe weren't a priority and now they are a priority. Now they just start putting money into the existing investment accounts.
How can I easily start saving toward my investment goals?
If you want to save for your investment goals, it has to be easy. I mean, we all work 40-50 hours a week, we've got kids, we've got families, we've got commitments. Whatever we do, we want to make sure that it's very simple, straightforward, and doesn't take a lot of time. The easiest way is the effortless savings program. What that means is basically you're setting up these investment accounts and then you're having part of your paycheck directly deposited into each of these accounts every single month. That way you earn the money, the money's taken out of your paycheck automatically, and deposited into your accounts automatically. You don't have to do anything.
How can my 401k help me build wealth?
If you have access to a 401K, the best tip I can possibly give you is to start investing in it. I think a lot of people have 401Ks available to them, but for whatever reason - maybe they think they're not going to be able to put that much in every month - they don't even open the account. The first hurdle is just getting the account open. It's so easy. All you have to do is talk to your HR department and say, "You've got the 401K. I want to participate." They'll give you a couple of forms. You fill it out and you've got a 401K account. Then you just tell them how much out of your paycheck you want to invest each month. You can either say a particular dollar amount - let's say $20 out of every paycheck - or, what I think is a little bit better, is to specify a percentage. Maybe, "Two percent of my paycheck goes into my 401k automatically every month." The advantage in dong a percentage rather than a dollar amount is that as you continue to work there, as you get raises, the percentage that you're contributing goes up, whereas if you just put a flat dollar amount in, it would stay the same.
What are some tips on using my 401k effectively?
You've started your 401K, you've got it open, you're contributing a little bit every single paycheck. What you want to do is ask your HR department if the company matches part or all of your contribution. You want to make sure you're contributing up to at least what they're matching. If they say were going to put in up to 5% of whatever you contribute, do it: put at least 5% in. It's free money. They're giving you free money so take advantage of it. Another thing: if you get bonuses, rather than just getting all of that money into your grubby little hands in your checking account where you can spend it, tell them you want to direct deposit maybe 50% of it or maybe 100% of it into your 401K account. That's the best way to really build up a huge 401K - put little amounts in every single month, but then when you have those big paydays, the big paychecks, maybe the bonuses or the commissions, put a little bit more of those in your 401K every month.
How can 'direct deposit' help me build wealth?
Direct deposit is great because it's easy. It's effortless; you don't have to do anything, once you set it up, you're done. That's the beauty with this. Anything that requires a lot of effort, a lot of time, a lot of research, has a tendency to make you be really excited about it initially, but then after a while, you stop doing it. With direct deposit, you go back to your HR person and say, “I have these six different investment accounts. Can you please go ahead and put $50 in this account every month, and $25, I'd like you to direct deposit that in this other account.” Just go through all your accounts, tell them where you want your money divided, and boom, you're done.
How can 'automatic transfers' help me build wealth?
Automatic transfers are kind of the poor-man's direct deposit. Not every company offers direct deposit, or if they do offer it, they might limit your ability to direct deposit to maybe one or two or three different investment accounts. With an automatic transfer, you actually go to your bank, you would have all of your money direct deposited into your checking or savings account. Then you would go to your bank and say, "Now that the money is there every month, I'd like you to transfer out of my bank X amount into this investment account, and X amount into that investment account." It's still very easy, it's very automatic. Once automatic transfers are set up, you don't have to do anything else after that.
