Daily Gains Letter

This ETF Can Increase Your Retirement Savings Substantially

By for Daily Gains Letter |

DL_Feb_20_2013_MoeSaving money for retirement is a long-term process. It is true that the longer you have, the more you can save. Unfortunately for some, this might not be the case. For example, a person starting to save for retirement at the age of 25 can certainly save more over time by saving smaller amounts than a person starting to save higher amounts at the age of 55 and planning to retire by the age of 65.

Consider this; if a 25-year-old saves $150.00 a month, by the retirement age of 65, they will have total savings of $72,000—assuming no investing of any sort. On the other hand, the person who begins at 55 and puts away $300.00 a month—twice as much—towards retirement savings will only have $36,000 at the age of retirement.

But don’t let this discourage you if you are in the latter situation—there are ways to increase your savings significantly without really putting up extra income and making changes to your lifestyle.

Look at WisdomTree SmallCap Dividend (NYSE/DES) exchange-traded fund (ETF), for example. (Please note that this is not a specific buy recommendation, but is meant to serve as an example of the type of opportunity you should seek out.)

This ETF seeks to follow the performance of the WisdomTree SmallCap Dividend index. The fund invests in companies that the index comprises—mainly small-cap dividend paying companies in the U.S. (Source: WisdomTree web site, last accessed February 15, 2013.)

In addition to providing diversification by investing in companies in different sectors, this WisdomTree ETF also pays out a monthly dividend. The current yearly dividend yield on this ETF is 4.1%, and the latest dividend payment amounted to $0.168 on January 22. (Source: Yahoo! Finance, last accessed February 15, 2013.)

ETFarticlesChart courtesy of www.StockCharts.com

This ETF has grown in value significantly. In late October 2011, it was trading below $36.00 a share. From there, it skyrocketed and currently hovers around $55.00—that’s an increase of more than 52%.

How does one go about saving more with this?

Consider this scenario: you bought 100 units of the WisdomTree ETF, costing roughly around $5,500. At the same time, you continue to put $150.00 a month toward your savings. After collecting your monthly dividend payment for this ETF, your savings will actually be $166.80—assuming you don’t do anymore investing after this.

This way, instead of saving $1,800 a year, your savings will be a little more than $2,000 a year—10% more savings.

Increased savings can make a huge impact in the long run; and if you continue to invest in opportunities similar to this one, your retirement savings can have a snowball effect, and you can reach your goal.

In addition to all of this, if individuals collect all their savings in their retirement account and invest there, their tax expense will also decrease significantly—since the tax is deferred on retirement accounts until the money is withdrawn.

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