Not everyone is thrilled about making investing decisions, but what if you did something?
I know a guy who usually takes the easy path and he did the same thing with investing.
In fact he only made 4 important decisions.
What He Did:
- In college he received a small amount of stock and kept it.
- In his 40s he received a small inheritance and put it into an S&P 500 Index Fund.
- He funds an IRA at tax time.
- He set all of his investments to automatically reinvest the dividends.
Where He Stands:
As of 10 years ago he had enough to live on at his current rate of expenses until he could begin Social Security benefits (which would replace his income).
Why Did That Work?
- Early Investment – Early in his career he made a one time investment. He didn’t make an ideal investment but he made a decent one–stock in a publicly traded utility. It’s not diversified like an S&P500 Index fund, but…it’s decent, the company makes money and he gets his share. There are better ways to start but the important thing is that he started investing. Even better he started early.
- Automatic Reinvestment – He made a one time decision to reinvest his stock dividends. That meant he got the seemingly magical benefit of compound interest. The money his investments made went right back into making more money for him. Since reinvestment was automatic he wasn’t charged a fee for it. Since it was automatic, he couldn’t forget.
- Productive Neglect – You don’t want to neglect your spouse, your children, your friends, or even your car. But in most ways you do want to neglect your investments. If you look at them a lot, you’ll probably panic. If you keep taking the cake out of the oven to check it, it won’t do the cake any good. While the stock market provides great returns over the long run the short run scares us so we often mess up our investments, not knowing what we’re doing or, worse yet, pay a professional to fail in guessing the future. This guy was great with benign neglect. While he was doing other things, his money kept making money. While his active decisions were sometimes so-so, his lack of decision has paid off hugely.
- Regular IRA – While not a ton of money, he decided to fund an IRA every year. While it’s painful to me to contemplate, he simply parked the money in CDs. Almost no profit but he keeps saving. Across the years it has added up. Plus, predictable cash balances his unpredictable but far more profitable stock investments.
- Invest a windfall – Truthfully, most of us get a small windfall. Unfortunately money we didn’t work for often disappears. How bad is it? 70% of people who get a big windfall go broke!
- Estimate needs – When he was in his 40s he thought he might get downsized but he had enough money even then to last until Social Security benefits. Plus, his boss wasn’t stupid so he’s still working and now even better off financially.
