Warren Buffett is one of the richest people on earth. But even he didn't make his millions overnight. He started his investment firm in 1956 with a little over $10,000, and now, over half a century later, he's worth about $45 billion.
But be honest. Do you really think you're a better investor than Warren Buffett? Do you think you can get rich quicker than the Oracle of Omaha?
A few people have done that and made their fortunes virtually overnight. Think of Bill Gates, who founded Microsoft. Or Mark Zuckerberg, whose start-up of Facebook was dramatically chronicled in the movie The Social Network. He's now 28 years old and worth some $14 billion.
But Mark Zuckerberg was programming computers at the age of 12 and developing his "killer app" while a sophomore at Harvard. If you're prowling the hallways of Harvard, developing the next big "killer app," you have a good shot at getting rich quickly. But for the rest of us, steady wins the race. Here are six guideposts to help you chart your way:
Start saving and investing early. Warren Buffett had a paper route as a child, and in high school he ran a pinball-machine business. He started investing in stocks at the age of 11. Now, you're probably not going to start investing at age 11. But there's no reason you can't forego a few cafe lattes when you're in your 20s, and start socking away some funds in a discount investment firm like Vanguard or Fidelity.
Sign up for your employer's retirement plan. No matter how good or bad your employer's retirement plan is, it's better than nothing, whether it's a cash-balance plan, a defined-benefit plan, or a 401(k) plan. Start right away, with your first paycheck, or as soon as you're allowed, and try to contribute the maximum amount. If your company does not offer any savings plan, open your own IRA account as soon as you start working. For most people a Roth IRA is the better choice, since you can later take your money out tax free.
Get somebody else to match your contributions. If your company matches your 401(k) deposits, do the smart thing and contribute at least as much as the company match. If the company offers an employee discount for buying company stock, take the deal. It's better than what everyone else is getting. If anyone else offers to supplement your accounts--whether it's your employer, the government, or a rich uncle--take them up on it, because it's the best return on an investment you're ever likely to get.
Reinvest your dividends. When you sign up for a plan, you have a choice to take the dividends and distributions in cash, or to reinvest them. Check the reinvestment box. That way you take advantage of compounding your investments, meaning you'll be making more money from the money you just got. Don't believe me? Ask Warren Buffett.
Do not give up. There will be times when you get a statement showing that instead of making money for the last quarter, or even the last year, you actually lost money. A lot of us went through this crucible in 2008 and 2009. But do not despair. Now in 2013, those losses from 2008 and 2009 have been made up, and then some. Warren Buffett's first investment was three shares of Cities Service Preferred which he bought at $38 per share. The stock soon dropped to $27. But Buffett held on until the shares went back up to $40 and ended up selling for a small profit. Still, he confesses he made a bad decision. He should have held on longer, as Cities Service eventually bubbled up to nearly $200 a share.
Wait a long time. Remember, you're not supposed to use your retirement funds for 20 or 30 years. So be patient, and do not worry about short-term swings in your account. And whatever you do, do not raid your retirement fund for any daily needs. Do not use that money to take a trip to Europe or buy a new car (one exception might be for a down payment on a house). The whole idea is to let this money accumulate and grow over time.
Tom Sightings is a former publishing executive who was eased into early retirement in his mid-50s. He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement, and other concerns of baby boomers who realize that somehow they have grown up.
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