One of the funniest/saddest things in my lifetime was watching the transition from defined benefit retirement programs into this “do it yourself” mess. They turned the responsibility of retirement over to the individual, but they didn’t provide any guidance or training. Its ridiculously simple, but you have to tell people. People can end up with fantastic amounts of wealth from their investments at the end of 40 years, but you have to have a plan.
The post title was taken from an ad by a financial site called Seeking Alpha (‘alpha’ being the investment gain of money). They used terms like “for real investors” and “advanced portfolio tools“. What a load of crap. They want to make investing seem all difficult. That there is some kind of “black magic” to it. That you have to pay for their “premium side” to get all this expert advice or you’ll end up an abject failure. After making every investment mistake you can make, I’ve learned a couple of things.
The first is that if you have a matching program from your employer that allows you to put your money into a low-cost index fund, take it. The power of regular bi-weekly investing through 26 pay periods a year is incredible. If you don’t have a matching program that’s fine too. Just $200 dollars a month into Vanguard’s VOO ETF index fund that tracks the S&P 500 will make you a millionaire if you start at age 22.
It would be best if it was twice a month, but even once a month is fine. You don’t have to be a “savvy investor“, you don’t need to have sophisticated “portfolio tools“, you just need the ability to save $200 dollars a month come hell or high water. Its called an index ETF fund. I say ETF because they have lower costs than a mutual fund. A mutual fund has an expense rate around .5%, and exchange traded fund around .05%. Vanguard’s VOO ETF expense rate is actually .03%.
Its real simple, 26 pay periods a year times 44 years. If you let salesmen get you off track into load funds and individual stocks you can end up with far, far less. If you let yourself get within 5 years of retirement fully exposed to the stock market you can end up with far, far less. But if you put $100 a pay period for 44 years into a low-cost index fund, you will have over a million dollars.
With typical historic returns and with investing more as you earn more, you will end up with many millions.
If you let salesmen steal from you, if you get scared when the market goes down, if you live only for today and fail to save for tomorrow, you will end up broke. Albert Einstein is reported to have said compound interest is the greatest invention man ever made. The only sad thing is that we should have to be in the stock market at all. If we didn’t have a corrupt banking system we’d be able to earn 8% in long-term CDs or Bonds. And we wouldn’t have to swim with Wall Street sharks at all.