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Smart Investing: Paying Yourself First
by David Fessler, Advisory Panelist
Thursday, May 14, 2009: Issue #997
Everyone knows a tightwad or two. I came by my savings habits from my father, who’s a spendthrift. Growing up when he did – as a child of Depression-era parents – taught him the true meaning of a dollar..
But before they paid any bills, they paid themselves first with a little smart investing. They put some money into a savings account every week.
After a successful career in the printing business spanning 42 years, my father retired at the age of 60. By that time he had achieved the title of Vice-President of Operations. (I used to marvel at the fact that he knew the names of all 942 employees who worked at the plant.) But it’s his penchant for saving that I admire most. Now nearly 88 years old, he’s still saving before he spends.
It’s a lesson that we all can learn – or at least get a refresher course on. Because saving and paying yourself first may be the most important aspects of smart investing. But even more imperative than that is to have the right roadmap to get you to where you need to be.
Start With Saving: The Power of $20
Many years ago, I asked my dad how much he started saving on a regular basis. At first, he was only able to put away $5 a week, but he soon managed to sock away $20 every payday.
Let’s face it, just about everyone can find an extra $20 a week. Three easy ways for starters would be:
- Brown-bagging lunch,
- Bargain hunting,
- Renting a movie instead of going out to the theater.
And while today you might not think of $20 a week as much at all, take a look at what will happen to it if you deposit that $20 a week into an IRA.
Assuming a reasonable long-term annual yield of 7%, you’d have $64,806 in just 25 years. You can thank the miracle of compounding: The powerful result of continuing to add money to an account that is already growing with interest.
Now imagine if you could save $50 or even $100 a week how much you’d have.
Smart Investing: A Disciplined Way to Save
It’s no secret that regular smart investing is a disciplined way to save. And down the road it pays you a healthy dividend (pun intended).
So what should you do now? In this environment, many investors are asking the same question. We heard it over and over at the recent Investment U seminar in St. Petersburg: “I’m very concerned about this market. What should I do now?”
We can’t give individual investment advice, but what we can tell you is that if you’re not invested – especially at the very time when your instincts tell you to get out – you will likely miss some of the greatest growth potential that will happen once the recovery begins.
The research firm DALBAR, Inc.’s study “Quantitative Analysis for Investor Behavior for 2009″ found that while the S&P 500 Index earned an average annual return of 8.4% for 20 years prior to 2009, individual investors only managed to eke out an annual return of 1.9%.
The reason? Most investors trade on emotion, and as a result typically buy high and sell low, losing money in the process – or, at best, severely limiting their returns.
Smart Investing: The Stock Market vs. A Savings Account
Smart investing in the stock market works in much the same way as putting money into a savings account on a regular basis. Indeed, it is a form of savings, but with the potential for much greater returns over the long run, particularly in an environment like the one we are currently experiencing.
Dollar cost averaging is a great way to invest on a regular basis. So what is it exactly? It’s the idea that you invest the same amount in equities or mutual funds each month, regardless of what markets are doing. This allows you to take advantage of down periods in the markets, buying more shares when they are lower, and less when they are pricey.
But buy what exactly?
Well, perhaps you’re at the point in your life where you don’t have time to manage your investments. Or maybe you just don’t want to be bothered. Regardless, it’s money that’s still very important to you, and it has to be handled in a serious way.
If this describes your scenario, then my colleague Alexander Green has the perfect solution for you. It’s his exceptional strategy from his bestselling book, “The Gone Fishin’ Portfolio: Get Wise, Get Wealthy… and Get On With Your Life.”
Alexander Green’s Exceptional Smart Investing Strategy
What’s so exceptional about Alexander Green’s smart investing strategy?
- It has beaten the market and over 90% of investment professionals each year for the past decade, with only a fraction of the risk of being fully invested in stocks. (Even Warren Buffett’s investment strategy has lagged in its performance.)
- It allows you to do a complete end-run around Wall Street and its mountain of fees and expenses.
- It is based on the only investment strategy that won the Nobel Prize in economics.
- Yet it is so simple to use, it allows you to manage your money yourself in just 20 minutes a year. The rest of the time you are encouraged to travel, play golf… or just “go fishin’.”
Your financial freedom, peace of mind and security – and your family’s – are too important to ignore. And to safeguard these with financial advisors with obvious conflicts of interest, seems like a recipe for disaster.
The fact of the matter is that no one will ever have your best interests at heart like you do. No one knows the importance of your family, your lifestyle and your wishes like you do. And as the “captain” of your ship you need a simple, easy to follow, easy to understand “map” to help you reach your goals.
For all these reasons, we’ve decided to give away thousands of copies of the book this month as a gift to Investment U readers who decide to join our parent investment group, The Oxford Club. Pick your complimentary copy of The Gone Fishing Portfolio today.
Good Investing,
David Fessler
Today’s Investment U Crib Sheet
Here are the last three updates from our IU Blackboard:
And Louis Basenese just showed readers a few warning signs for the newest IPO: DGI.
The “Market Wake-Up Call” is a new video feature for Oxford Club subscribers: Host Steve McDonald sits down with our editors and analysts to get their take on the hottest Wall Street events. As a special feature for Investment U, we’ve been able to offer selected segments for our subscribers.
If you haven’t seen it, take a look at the latest Oxford Insight Market Wake-Up Call. If you’d like to get the latest Insight, along with Alex Green’s New York Times best-seller “The Gone Fishin’ Portfolio” and all of the other benefits of Oxford Club membership, consider becoming an Oxford Club Member.
- The Gone Fishin’ Portfolio: The Best Low-Cost, Tax-Efficient Investment System
- The Gone Fishin’ Portfolio: Your Retirement’s Financial “Declaration of Independence”
- Investing 101: Six Factors That Determine Your Investment Portfolio Value
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5 Responses to “Smart Investing: Paying Yourself First”
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David Fessler is an Advisory Panelist for Investment U and The Oxford Club, one of the world’s most exclusive and prestigious networks of private investors.
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May 14th, 2009 at 10:33 am
Some of the reviewers of the book “Gone Fishin” over on Amazon.com say the strategy didn’t perform well in the 1990’s and not too well last year. I’d like to see a backtest of the strategy over the last 50 years or so. At least through one bull and bear market cycle.
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May 14th, 2009 at 10:34 am
You wrote “I came by my savings habits from my father, who’s a spendthrift, too.” You and your Dad are not spendthifts. Spendthrifts spend money without thought. You are frugal, pennywise and thrifty! Thanks for the reminder of how little amounts saved can really add up!
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May 14th, 2009 at 11:25 am
Liked your article until you got to the sales pitch for the gone fishing portifilio. Last year I put my wife’s IRA Fidelity account in that stragety.
We started with $234,622 and i just reballanced at $181,515 for a loss of 22.64%. Granted it’s better than the S&P500 but when I was personally managing it we never had that%loss in any year. The lesson learned is to never put your investments on autopilot.
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May 14th, 2009 at 4:34 pm
I can tell you David is right! I just retired at 50. it was not because of the money I made. It was because I saved and invested over the years. I was never really frugal or a spendthrift but I did save something every month. If you can have money taken out automatically from your pay check you will not even miss it!
Marc
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May 14th, 2009 at 9:20 pm
To the Marketing Team:
I would invest the $ 49.00 and see what this is really all about………….I am so very SORRY but I do NOT trust anyone or ANYTHING anymore.
Miriam Etienne
The Meadowlands, N J
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