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Saturday, March 15, 2014

Snowmobiling and Preparing for Retirement

Grafton Snowmobile Trail
(March 11th, 2014)

What does snowmobiling have to do with preparing for your retirement?  Perhaps more than one might suspect.

I am not a fan of motors, except when absolutely necessary.  In today's civilization, we pretty much need to own a car.  I don't see a similar need for owning a powerboat, snowmobile, all-terrain vehicle (ATV), dirt bike, etc.  Such vehicles might be fun, but they pollute the air, damage the terrain and produce noise that detracts from an otherwise serene environment.  Sometimes they play a part in the loss of a life.  And yes, admittedly, used by the proper group(s) they facilitate the saving of lives.  They are not cheap.  Instead of investing in a gasoline powered recreational vehicle, why not slow down the pace, pay a tiny fraction of the cost for snowshoes, cross-country skis, a canoe or a kayak and get some exercise benefits while enjoying our beautiful environment?  And, at the same time, increase the likelihood of an economically secure retirement.

Hypothetically, let's say you were intending to spend $7,000 for a snowmobile for winter recreation -- an eyeball average per Snowmobiler Trader.  Let's also say you were intending to spend another $7,000 for an ATV -- an eyeball average per ATV Trader.  However, instead, you decided to put some or all of the $14,000 into the Vanguard S&P 500 Fund (VFINX for a minimum investment of $3,000 at a .17% fee or VFIAX for a minimum investment of $10,000 at a lower .05% fee) -- a low-cost index mutual fund that performs in sync with the Standard & Poor 500 ticker.  The S&P 500 represents the 500 largest corporations in the United States and accounts for about three-fourths of the U.S. stock market's value.

Over the very long run, the stock market has had an inflation-adjusted annualized return rate of between six and seven percent.  So let's call it 6.5%.  Utilizing a compound interest calculator at 6.5% compounded yearly, a $7,000 investment, based on market averages, grows to $9,590 in five years, $13,140 in 10 years, $24,665 in 20 years and $46,300 in 30 years.  Investing $14,000 doubles that.  $92,600 in 30 years for your $14,000 investment.  How much will that ATV and snowmobile be worth in 30 years?

Click here for a short video of an interview of Warren Buffett, the second wealthiest person in the U.S. after Bill Gates and the best investor of all time, explaining where he's putting his money for his wife's future after he passes away.  And let me recommend The Smartest Investment Book You'll Ever Read.  Hokey title, but I do believe it's true.  Praised by The New York Times and The Wall Street Journal, it totals 192 quick-read, plain English, superb advice pages. 

$7,000 compounded yearly at 6.5%


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