Alright, the first lesson I learnt: Just do it! Well, what I really mean is to take action immediately. What have you been postponing lately that you know will make you a better and richer (both in wealth and lifestyle) person? Maybe it’s just, calling an old friend, or even taking out the garbage (who likes to do that? I wish I had someone doing that for me really…), or even starting a business that you’ve always wanted. Anyway, take out a piece of paper and a pen and write them down NOW! Stick it on the wall and get started. Repeat the same once you’ve accomplished the first just-do-it. If it’s something big, it doesn’t matter if you know how to do it, just get started by finding out more about it. And know this, “Believing is Seeing” (powerful words from Bob Proctor).

Don’t be lazy

My first just-do-it was going into personal investment. I knew we should start early to take advantage of the interest compounding effect, but I didn’t do it because I always had the excuse of being too busy, too tired, or the most evil of it all, too lazy. Excusitis, as Dr. David J. Schwartz wrote in “The Magic of Thinking Big”, always stands in between success and ourselves. So, just do it! And that’s why Nike is so successful!

To illustrate what I did, I got started investing in my employer’s 401k and also a Roth IRA on the side. In fact, I should’ve done that earlier when the stocks were really on sales (some time in March 09). But it doesn’t matter, as Warren Buffett said, we can never time the bottoms. Just buy a share of business when the price makes sense!

Alright! So you’re employed. You have a paycheck coming in monthly or biweekly. If your employer provides 401k program, just participate!

2 reasons to contribute to 401k

1) Some companies match your part of your contributions as soon as you get started, some later. So, how does it work? Let’s say your company offers 100% match up to 6%. You make $100,000 a year and contribute $6,000 (6%) each year, your company will match the $6,000, so it’s essentially $12,000 that goes into your investment account a year! Free money. Don’t waste it!

2) Tax advantages. If you contribute through traditional 401k, the contributions will be pre-tax and the withdrawals will be tax-deferred. If you go through Roth 401k, the contributions will be post-tax (from your after-tax paycheck) but the withdrawals will be tax free! For more details, check out this Wikipedia table.

Target Fund

Anyway, as to the funds that you should invest in, I went for the Target 2050 fund. It’s a simple and lazy way to invest your money if you have no idea which to pick. It automatically chooses the appropriate allocation based on your target retirement year. I would go for index funds later on when I get some time to adjust my asset allocation though. My current fund has 90% of stocks and 10% of bonds. And no, I’m not worried a single bit!

The current market is just experiencing temporary setback from its glory in the future. You see, even the stock market has setbacks, it’s just a part of life, and I have a long time horizon to ride it out. In fact, based on Peter Lynch’s book, “Beating the Street”, stocks historically return nearly 11% on average (3% from dividends + 8% from prices going up). If you seriously want to learn the art of investing, read that book (even Robert Kiyosaki, famous for his “Rich Dad, Poor Dad” series, recommends it). So, don’t worry, be happy!

Roth IRA

Okay, your company doesn’t have a 401k program? Don’t worry, just set up a Roth IRA (It has a limit of $5,000 annual contribution). You can do this practically from any brokerage investment accounts. Ramit Sethi, founder and writer of I Will Teach You To Be Rich recommends the following 3:

1) Vanguard

2) T. Rowe Price

3) Schwab

Vanguard seems to have funds with the lowest expense ratio (% they charge for managing your fund), but it requires minimum $3,000 to open. If you want to start small, go for T. Rowe Price or Schwab ($50 and $100 automatic monthly contribution, respectively).

Automation

Now that you’ve set up your 401k and IRA, you don’t even have to think about them any more for a long time, because everything is done automatically. According to Peter Lynch though, you might want to invest more in the stock market when there’s like a 10% dip in the market, and in the long run you will be way better off than those who sold their investment out of fear. By the way, you might want to set up separate investment accounts to do that, since the IRA has limited annual contribution and 401k has to wait until your payroll deduction to take effect (and you have to change the contribution %, etc, which takes time).

Summary:

1) Take action immediately – write it down and do it now.

2) Invest in 401k and IRA – easy and automatic once you set it up!

I look forward to reading your comments, suggestions, and experiences!

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