Most people my age are not saving for retirement. Most aren't even thinking about it. I'll be done by the time most people start saving for it. If you're out of college and aren't saving everything you can, you should. It's all about time value money.
If you were to open a Roth IRA when you get out of college and start working full time (lets say 22 years old), and contribute $5000 dollars a year every year until you retire at 65. You'll have contributed $215,000 over that time span, and if you were to invest in relatively safe fixed-income securities yielding 5% a year, that nest egg will be worth over $755,000. If you're a little more risky and were to invest in the stock market with an annual rate of return of 10%, that nest egg will be worth an astounding $3,260,000! Now if you're a very astute investor and were somehow able to wrangle an impressive 15% a year, that $215,000 will have grown to over $15,530,000!!!
Lets say that you are more like the rest of America and don't start saving until your mid thirties (we'll say 35). You'll have contributed $150,000, and those same investments would be worth only $353,000 (5%), $909,000 (10%), and $2,504,000 (15%) - quite a difference from if you had been saving from the beginning. And, if you had been smart enough to use a Roth IRA structure, all that money would be withdrawn TAX-FREE! Now that's the power of money over time.
Some of you might be wondering why I'm so excited at the market falling. Well, simply, when the market falls like it has, everything is on sale. I can go in and buy stocks, ETF's, and get in to mutual funds at 30% discounts to what I think they are valued at, and over time they'll recover and their price will better reflect their true value. Just by adding money into the market while it's down I'll be able to get some gains just by buying when everyone else is freaking out. Yes, they may lose some more value in the short term, but I'll just continue to add money and get securities at discounted prices.
Oh, and don't go telling me that the market will never be the same, and that I'll just be losing money - the market WILL recover, and we WILL be a dominant country economically again. It may take several years, but things will get better - mark my words. Economies go through cycles of boom and bust - it's natural and it's what keeps the economy in check.
Tuesday, September 30, 2008
Gas crisis? Price gouging laws are bullsh*t
I went to 4 gas stations in metro Atlanta today before I found gas, and then I had to wait in line for more than an hour just to fill my tank up which got me thinking - why the hell is gas only $3.99 a gallon?!? As I sat there and watched frantic people fill their cars and sometimes even extra gas cans like gas was going out of style all I could think about was that the government was royally screwing this up (big surprise, eh?). What’s to blame though? Price gouging laws.
Price gouging laws were set up to keep businesses from profiting excessively in times of crisis at the expense of the people. And while I agree that jacking up the prices of food before a hurricane hits with no change in supply is a necessary law, gas shortages should be exempt. Yes, that means I do want to see higher gas prices when the pipelines dry up and the oil refineries are shut down. You see, the problem is that when supply is crippled and people start freaking out thinking that gas will never be available again, they all run to the pump and get as much gas as they can, especially when it's the same price as normal. That's why no one has any gas anymore.
Now what if we let the free market handle the situation instead of the government? Well, the reduction in supply would suggest that the price should go up; lets say for argument's sake that we have half the supply and the price doubles. Now, with gas at $8 a gallon, people start to change their actions. All of a sudden instead of filling up all their cars and rushing to the hardware store to buy all the 5-gallon gas cans they can get their hands on, and then filling those too, people get just as much gas as they need for the short term. At $8 a gallon, I would stop driving anywhere I didn't need to, and maybe I'd even take the abysmal public transport system. But one thing's for sure - my demand for gas would drop to only the bare necessities. Voila! No more gas shortage. Free market economics have successfully provided the most efficient allocation of resources, and the world is right again.
Some might say that gas doesn't work this way, however, and that it's demand is inelastic (doesn't change with price changes) but I say in short term crunches, a big enough jump in price would sufficiently change demand if the public feels that the price will come back down when the supply is back to normal and they'll be able to fill up at normal prices later. As for those "massive windfall profits" the gas station owners would make, well really they'll probably make the same amount of money that month, and if you're really concerned about them getting rich, then impose some sort of TEMPORARY windfall profits tax on them and use the proceeds to pay off some of the state's budget deficit.
Hopefully now you see why temporary price hikes in periods of supply shortage is a GOOD thing, and not some evil strategy for the rich to steal from the poor, or whatever load of malarkey the media is feeding you. Oh, and what about that bailout plan that failed and caused the largest single day drop in the DOW? We'll get on to that later...
Price gouging laws were set up to keep businesses from profiting excessively in times of crisis at the expense of the people. And while I agree that jacking up the prices of food before a hurricane hits with no change in supply is a necessary law, gas shortages should be exempt. Yes, that means I do want to see higher gas prices when the pipelines dry up and the oil refineries are shut down. You see, the problem is that when supply is crippled and people start freaking out thinking that gas will never be available again, they all run to the pump and get as much gas as they can, especially when it's the same price as normal. That's why no one has any gas anymore.
Now what if we let the free market handle the situation instead of the government? Well, the reduction in supply would suggest that the price should go up; lets say for argument's sake that we have half the supply and the price doubles. Now, with gas at $8 a gallon, people start to change their actions. All of a sudden instead of filling up all their cars and rushing to the hardware store to buy all the 5-gallon gas cans they can get their hands on, and then filling those too, people get just as much gas as they need for the short term. At $8 a gallon, I would stop driving anywhere I didn't need to, and maybe I'd even take the abysmal public transport system. But one thing's for sure - my demand for gas would drop to only the bare necessities. Voila! No more gas shortage. Free market economics have successfully provided the most efficient allocation of resources, and the world is right again.
Some might say that gas doesn't work this way, however, and that it's demand is inelastic (doesn't change with price changes) but I say in short term crunches, a big enough jump in price would sufficiently change demand if the public feels that the price will come back down when the supply is back to normal and they'll be able to fill up at normal prices later. As for those "massive windfall profits" the gas station owners would make, well really they'll probably make the same amount of money that month, and if you're really concerned about them getting rich, then impose some sort of TEMPORARY windfall profits tax on them and use the proceeds to pay off some of the state's budget deficit.
Hopefully now you see why temporary price hikes in periods of supply shortage is a GOOD thing, and not some evil strategy for the rich to steal from the poor, or whatever load of malarkey the media is feeding you. Oh, and what about that bailout plan that failed and caused the largest single day drop in the DOW? We'll get on to that later...
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