It’s great to have an investment plan, and it’s great to have goals and a sense of the kind of retirement you’d like to enjoy. It’s also very useful to put money away every month in either savings or an investment portfolio.
But while there is a ton of advice out there about how to prepare for retirement, which gives the average worker a little over 40 years to salt away a nest egg, there is little notice taken of the expenses that can drain away your funds before they ever reach your individual retirement account. That’s where aggressive growth stocks can come in handy. More on those in a bit.
Here are my thoughts on the topic.
The Big Three: Marriage, College and Retirement
Unexpected expenses are a pain. I should know, because I’ve had a lot of them in my (unexpectedly) long life. On Okinawa, during my term in the military, my Mazda Carol decided to brick its engine one evening on a quiet drive to Gate 2 Street (a site of many recreational opportunities for servicemen). That was no fun to fix on a Spec. 5’s salary.
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And along the way, there has always been a roof, a water heater, a muffler or a set of tires that demanded to be taken care of right now! And I found a way to make the payments, but that often meant that the retirement account had to wait its turn.
But while unexpected expenses can be troublesome, the perfectly predictable ones can absolutely kill you. And yes, what I’m talking about are putting your kids through college and getting them married.
Estimates of the cost of the average marriage vary widely, depending on who you ask. If you believe www.costofwedding.com, the cost will be near $26,000—although particular ZIP codes average well over $44,000. And www.theknot.com estimates that the national average is a little over $35,000. And if you live in New York City, the average splicing ceremony will set the folks back over $70,000.
That’s bad enough, but it pales in comparison to the cost of putting Bud and/or Sis through college.
It’s hard to imagine that just 18 years after you first hold that adorable newborn to your heart that you will be spending an average of over $20,000 a year to send the resulting teenager off to acquire wisdom, judgment and enough job skills to support him/herself for the rest of his/her life. (And you definitely don’t want to think about the things you got up to when you were in college; that way lies madness.)
That $20,000 per year, by the way, is kind of a best-case scenario. It assumes that your offspring will choose an in-state public university to attend. If your high-school grad decided to shoot for a private college, the average bill will top $43,000 a year. (In practical terms, that’s one shiny new Audi TT every year.)
This information on college costs comes from a Business Insider story with the relentlessly informative title “Here’s How Much You Need to Save for College Every Year Depending on When You Start.”
The article will tell you that if you want to send your kid to a public university in your home state, and you start when they are born, you need to be salting away $374 per month, without fail. If you wait until the tyke starts kindergarten, the required monthly amount rises to $585.
And if you just ignore the whole business of saving entirely and decide to pay the freight month-by-month at age 18, it will set you back $2,832. Per month. For four years.
Most horrifying of all, the $844 per month you need to set aside every month if your sprat is accepted at a private college will increase to a monthly bite of $6,394 per month if you do no saving at all.
The Solution? Aggressive Growth Stocks
And what, you may be asking, does this have to do with investing in aggressive growth stocks, which is the business I find myself in? After all, Cabot Global Stocks Explorer (formerly Cabot Emerging Markets Investor) has been finding monster winners among the stocks of companies in the developing world for well over a decade. But very few people include aggressive growth stocks in their portfolio allocations.
My point is this: While everyone in the investment industry is telling you that slow-and-steady is the only way to prepare for life’s expected (and unexpected) expenses and your eventual retirement, if your portfolio doesn’t include some exposure to aggressive growth—by which I mean owning individual stocks that are leaders in a bull market—you’re short-changing yourself. It’s like driving a car with a six-speed transmission and never getting out of fifth gear.
Will these aggressive growth stocks underperform when the market corrects? Of course! And that’s why you need an advisory like mine or like Cabot Growth Investor, that will lower your exposure to growth stocks when the market turns bearish. But not having any exposure to aggressive growth stocks because there’s risk isn’t a responsible way to manage your portfolio; after all, the preferred choice of financial advisors, which is to stick your entire equity exposure into index funds, has produced two monumental drawdowns since the 21st century began. (Here’s a monthly chart of the S&P 500 that starts with January 2, 2000. And yes, that’s a 12-year period of flat returns before the index topped its starting price for good in 2013.)
So if you want to prepare for the expenses of life in an active way, you should consider signing on for a Cabot growth advisory. Cabot’s combination of stock selection and adjusting exposure in response to market conditions is your best choice for meeting those expenses head on.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More