Invest early
Did you know investing just $85 a month in a good domestic stock mutual fund for 40 years – say from age 25 to 65 – will make you a millionaire. This assumes a 12% average annual rate of return, preferably in a tax-sheltered account.
What? You don’t have $85 a month to invest? What can you do?
- Sell stuff you don’t need.
- Don’t drink your paycheck.
- Don’t eat at restaurants.
- Pay cash for stuff.
- Drive a sensible car.
- Choose more frugal friends.
Et cetera…
Invest Often
What? You don’t have 40 years? No problem. Just invest more.
- $156 a month for 35 years — okay…
- $287 a month for 30 years — not too bad…
- $533 a month for 25 years — that’s pushing the envelope…
- $1011 a month for 20 years — envelope ripped… too much for a Roth IRA…
- $2002 a month for 15 years — sell the house…
- $4348 a month for 10 years — no chance at a life…
As we can see, after 20 years to go, it gets quite a bit more challenging to start at zero and accumulate $1,000,000. At $1000+ a month, we have to have our spouse open an IRA.
Young people! Let this be a lesson to you. Take it from a person who started with 20 years to go!
And If We Missed the Boat?
Short of building a time machine – after all hindsight is 20/20 – what else can be done?
- Deliver pizza,
- Throw newspapers,
- Create a blog,
- Write an e-book,
- Start a podcast,
- Do affiliate marketing,
- Sell stuff on Amazon, Etsy, Shopify,
Et cetera…
One of the reasons people my age have a side hustle is to boost our retirement saving. We’d still like to retire with dignity, since not many of us are fond of eating Alpo. So we increase my income.
Why? There’s only so much that we can cut from a budget. Eliminated cable? No more Netflix, Hulu, HBO, etc.? Using an old flip phone? Eating beans and rice, rice and beans? At some point, we are forced to explore the income portion of the equation.
Now What?
So you earned have some extra money to invest. Now what?
Sometimes, when we think we’ve missed the boat, we feel the need to take huge risks to play catch-up with our portfolio.
However, slow and steady still wins the race. Each time I read The Tortoise and the Hare to my daughters, the tortoise won. And after doing double-time to earn some extra money, we’d hate like hell to lose it all on a risky investment. It’s true that higher risk can mean higher returns, but our hard-charging offense should be balanced with a tempered defense.
So follow a solid asset allocation model comprised of index funds. Set it, and forget it. Instead of chasing performance, just rebalance once a year.