How Average Joes Can Retire Rich

Other than thoughts on personal finances, I think one of my strengths here at Free Money Finance is beating a dead horse. So with that thought, I bring another article on how the key to growing your net worth (and a big retirement nest egg in this case) is to spend less than you earn and save, save, save.

Here's the bottom line from Money magazine on how the average person can retire rich:

When it comes to the three main choices you have in your retirement account -- how much to contribute, how to allocate your money between stocks and bonds and which funds to choose -- a recent study by Putnam Investments shows that investing prowess isn't what matters.

It's how much you sock away.

In other words, saving more leads to, well, more savings. Not exactly a revolutionary idea, true, but it's surprising how big a bang you get by upping the percentage of salary you put in and how slight the payoff is from being a fund savant.

Yep, I love beating that horse. ;-)

Here's a quote that reinforces the main point:

"It pays to focus on what matters most, which is how much you're putting in your 401(k) for the majority of your career," says Putnam research chief Peter Chiappinelli. "You can have the greatest funds, but it doesn't mean much if you have only a small amount of money in your account."

Ok, so saving is the way to have the singlemost impact on your retirement, but you're not limited to just one option of making the most of your retirement -- you can save the max, allocate your investments properly and select good investment options. Doing all three will REALLY supercharge your retirement.

Here are Money's suggestions to making the most of your retirement savings:

The first step is to salt away as much as possible.

If you can't manage that all at once, increase your contribution by a percentage point a year.

Next, focus on your mix of stocks and bonds. A number of landmark studies show that asset allocation has a bigger impact on returns than the specific funds you hold.

As for funds, look for ones that have low fees and consistent investing strategies.

Here are a few posts from Free Money Finance that relate to this piece. Check them out to get more in-depth coverage of this topic:

• How Much Goes in the 401k?
• 10 Things You Should Ask Yourself About Retirement
• The Case for Indexing
• Where the Pros Stash Their Own Dough

Comments

[Ronald]

How Can A Person That has had a very poor credit score All There Life borrow/loan or even make $5,000.00 Cash without having to put any money into it to get started with......I Have The means To Invest the funds in If I just Had away to get my hands on 5 grand......and if It was A Loan That Was not to much in Intrest rate I Could Pay the Money back in About 2 months from the time I got the loan,And It Would Realy Be Nice If I Could Get My Hands On the 5 GRAND as soon as I Could.........Ronald

[Average Joe]

Funny you should mention me! I know that it's a hotly contested subject, but I believe that the "average Joe" (as opposed to me - The Average Joe) can do quite well investing in individual stocks. Mutual funds and their poor performance (which are usually brought up when people talk about trying to beat the market) are so large and under so much regulation that, for them, beating the market really is much harder than for the average individual.

I know that, at the very least, The Motley Fool is on my side on this one (www.fool.com), but if there's anyone reading this that would like to diversify some of their assets into individual stocks, check out my site as well (www.TheAverageJoeInvestor.com) for some tips on how to find good performing, value-oriented stocks.

-AvgJoe