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IF YOU WANT ADVICE on investing, don’t ask me. My investment knowledge is, shall we say, limited.
I don’t pay much attention to expense ratios, individual stocks, international markets, the VIX, interest rates or much else. I know nothing about evaluating stocks or the overall market, though I have learned the hard way that rising interest rates aren’t friendly to utility stocks.
In other words, I’m more like your typical saver who’s playing at investing.
The way I look at it, the most important thing is to keep your net worth growing and you can do that by saving regularly, even if you never earn a penny on those savings. Let’s say you saved 50 cents from your pocket change every day for 40 years. You’d accumulate $7,300, even if you just left the money in a piggy bank. Oh right, inflation.
I invest in municipal bond funds—simply because I like the idea of the tax-free income. So little is actually free these days. Would higher-yielding taxable bonds have been a better deal, given my tax bracket? I failed to determine that. Still, that tax-free income provides a nice inflation hedge.
I’ve saved and invested since I was age 18. I signed up to buy savings bonds through payroll deduction as soon as I started my first job. When I became eligible, I enrolled in my employer’s stock purchase plan, which allowed me to buy shares at a 5% discount. Along the way, I dabbled modestly in a few mutual funds. In 1982, when the company introduced a 401(k), I signed up and didn’t stop until I retired in 2010. In every case, I reinvested all earnings—and still do.
In the last few years of my career, I began receiving stock options and stock awards as part of my compensation. Eventually, I converted them into shares of my employer’s stock, a move I was advised against and which wasn’t common. “Take the cash and run” was the more typical approach. I also have a higher percentage of my investments than advisable in one stock. But today, the dividends from my old employer’s stock are almost equal to my Social Security benefit, once taxes and Medicare premiums are deducted from the latter.
When investing, it seems I don’t do much right. I might write the next version of Investing for Dummies and mean it. To be sure, today, I do use index funds and I don’t trade. That’s a good thing, right? The result of my hodgepodge of investment decisions over the decades can be seen in the accompanying chart.
I’m nearing my 80th birthday. My net worth is beyond what I could have imagined as a mail boy 62 years ago. But I occasionally think to myself, “If you’d made better decisions, sought some expert advice and taken a bit more risk, how much more would you have?”
Then again, does it really matter?
Seems to me financial success boils down to patience, simplicity, perseverance, time and compounding. Even we dummies can do that.
While you certainly are the model for financial discipline, diligent savings and a reasonable lifestyle without frivolous debt, which all helped you get where you are, luck was a HUGE factor too.
Many others made the exact same decisions, yet lost the lottery of life.
They invested a bit in employee stock plan w/every paycheck. Company went bankrupt – stock worthless.
They were hit with a costly disease and their policy rejected claims or didn’t cover much. Savings wiped out.
Spouse filed for divorce – half or more of their life savings gone.
Adult child or close family w/addiction, accident or illness – savings used to support and/or raise grandchildren.
Fired right before pension vested or otherwise screwed over by employer through no fault of their own.
Female, a minority and/or lived in at-will states: can’t land a job with pension, decent benefits or stability.
We all know life isn’t fair: my heart goes out to those who tried to do everything right and still lost out.
I am the first to admit I have had a life devoid of significant misfortune. I have seen what you describe in my own family, my sister and my children who have faced divorce and serious health issues, job loss and more.
Life throws a great deal at people which is sometimes difficult to handle and beyond our control, but I believe how we deal with what we can control will help even in such situations.
I see my greatest financial success as being in a position so as not to be a burden on my children and being able to help them when they face the things I was blessed to avoid.
If you know what percentages you want for your portfolio’s mix of stocks and bonds (which at a minimum you should) and are near that range it doesn’t matter what your target date funds years are. You can trial a free membership to Morningstar Investor, input your funds and it will tell you what your percentages.
This comment was for Dr Lefty
Thanks!
For someone who regularly reads and occasionally even writes for a personal finance website, I am appallingly ignorant about investing. Our retirement portfolio is entirely in target date funds. Our two rollover IRAs from our previous jobs and my current retirement account are set to 2025. My husband’s retirement account from his current job is set to 2050. They are divided between Vanguard and Fidelity target date funds. It would be totally Vanguard if our employers didn’t require us to use Fidelity for our current accounts.
I know I’m being lazy about this, and the guy from Personal Capital, now called “Empower,” was eager to tell me what was “wrong” with my “strategy,” such as it is. Maybe I’ll get more interested in tinkering with things when I get closer to retirement/retired and have more bandwidth. Maybe. We’ve actually done fine.
Some people don’t like target date funds because they see them as too conservative. I don’t think you are wrong at all. Being lazy about this is not a bad thing versus trying to play an aggressive investing scheme. I think the tinkering should depend on how you are positioned to generate income when you are close to retirement. If you have more than enough get out the tinker toy😎
“I have learned the hard way that rising interest rates aren’t friendly to utility stocks”
…and I “safe” bonds. (seems that the financial sources I read only mentioned after the fact).
“If you’d made better decisions, sought some expert advice and taken a bit more risk, how much more would you have?”
…Sounds like you are appreciative you have “enough”.
Only because I live off a pension and SS do I have enough.
Bravo Sir Richard! ‘Well finished means well started’
I find that if we do our work lives as best we can, we don’t have to consider some risky stock and worry about a return to get more dollars. I like your idea of
‘Then again, does it really matter?”
If a person has more, even much more retirement income than they need, they can have tens of thousands in non interest paying checking accounts, and not care. It’s a mind set after all.
Thank YOU for your wisdom.
“Sounds like you have enough,” is a reasonable conclusion and I can’t argue, but I can actually.
The fact is I live totally on a pension and Social Security. In my world “living” includes giving to others, travel, helping children and grandchildren and, donating, and yup still saving each month for the unknown.
But I will never have enough, because in my mind there is always the what if I can’t control in my world or my families. I want to see my net worth higher each month even if by $1.00.
My mindset would have me a basket case if we lived on investments.
I admire a lot of of what you’ve said and written in the past, but one thing puzzles me. You often say you don’t feel anyone is financially ready to retire unless they have 100% or more of their highest annual income x30 or more.
You also say above that you’d be a “basket case” if you had to live on your savings.
But since few today have pensions – and most will never be able to save 100% of their highest earning income year x30 years, what do you suggest they do?
If you had no pension & only savings, would you have just worked until you died? It doesn’t sound like you would have been comfortable living solely on savings and SS?
Just curious as you often advise others on retirement readiness.
Excellent point. Every time I mention this I get in trouble, but what I say is that one should retire with an income from all sources equal to 100% of base pay, NOT total income. For most people with a base of SS, that seems doable provided they don’t seek to retire in their 50s or early 60s.
As for me, my life would have been very different without as pension. VERY different. While I saved and invested while working it was nowhere near what would have been needed to maintain my lifestyle in retirement.
My wife did not work outside the home so we lived on one income. I never changed jobs in nearly 50 years which gave me a good pension, but likely lower income otherwise possible.
Worked until I died? I don’t know, I doubt it, but over the years I would have tried my best to build as many income streams as possible for retirement to limit decisions about withdrawing money from investments.
Subtract your age from 100 and divide it into your net worth, then divide by two because of your wife. Still think you don’t have enough?
So if I am 80 I divide 20 in to net worth and then by two? If that is the case I really don’t have enough and I’m quite depressed.
Net worth calculations don’t typically include the value of your pension (or Social Security payments), right? So if your “net worth” is completely in excess of those guaranteed monthly payments that you live on, you probably do have enough.
As ‘mytimetotravel’ says, “Sounds like you have enough.” You could perhaps add to your second to last sentence the words “and knowing when you have enough.” I am sure many HumbleDollar readers have read John Bogle’s passage about “Enough.” For those that haven’t. it goes like this: Joseph Heller, an important and funny writer now dead, and I (Kurt Vonnegut) were at a party given by a billionaire on Shelter Island. I said, “Joe, how does it make you feel to know that our host only yesterday may have made more money than your novel ‘Catch -22’ has earned in its entire history?” And Joe said, “I’ve got something he will never have.” And I said, “What on earth could that be, Joe?” And Joe said, “The knowledge that I’ve got enough.”
I love this kind of article. Financial success is a marathon, not a sprint. At the end of the race (retirement), can you still support yourself and any dependents? If you can you are a success, and it doesn’t matter what strategies you used to win.
There is so much complexity in financial affairs, and it is easy to get lost in seeking perfection. I read a lot of material about money and finance. It is very interesting to me, but to a lot of other people, not so much. One can get the feeling that all of those details are so important, and that we must deal with all of them. It isn’t true. We don’t need to know how many angels can dance on the head of a pin. We only need to keep focus on one goal; finishing the marathon as a winner.
I finally got around to reading Mogan Housel’s “The Psychology of Money”. He explains quite eloquently the power of regular saving, diverse investing, and compounding. He shows that the best investors can and do make many mistakes along the way, but the saving and investing habit, and the patience to allow savings to grow, are what generates wealth for most of us.
I’ve read through Housel’s book twice and sent a copy to one of my boys. It’s an easy read because he writes in terms of stories, however, the advice is profound yet can be implemented by anyone with a little self discipline. Housel has a great podcast in which he expounds on these ideas. I highly recommend both.
Maybe my book should be Patience Over Prudence for Investing Success
The author is Morgan Housel – sorry for the typo.
There is one magic word that is the best friend for all young investors and the word is “compounding.”
Sounds like you have “enough”, even more than enough, which is surely more important than chasing after “more”. I might be a bit leery of the employer’s stock, I hold a little from my former employer, and it’s worth less than it was a few years ago.
“I might be a bit leery of the employer’s stock”
…depends on what percentage of your portfolio, but in the meantime I would be thrilled to have a doubling of my Social Security income while it lasts.
You’re right about that, too much in any one stock is probably not a good idea and even more so when you live on that company’s pension plan.
I kept the shares and continue to reinvest dividends I think out of a (misguided) sense of loyalty to a company that helped make my life a success – but it’s not the same organization today as it once was. 🥲
Thanks, Richard, from another dummy, for reminding us of the basics of financial success.
Being risk adverse, my financial path has run counter to conventional advice but as for you, has served me well. I became an “aggressive saver” when others would have advised to be a more aggressive investor. Investing in fixed income worked well in a declining interest rate environment; it was not until my forties, with a solid nest egg, that I felt comfortable buying stocks. And by then (dot-com era), value stocks and dividend-payers, which I gravitate to, were out of favor. With “buy and hold”, those investments have worked out well too.
I like your question, “does it really matter”? For me, investment success is all about responsibility and self-reliance, not wealth. I can provide for myself and others, and that is what matters. Investment advisers might have achieved better returns, but they would not have increased my satisfaction in knowing I built my own financial house.
You got it. I agree. There is satisfaction in reaching one’s goals even if you don’t make it to the top of the mountain. I compare my status to others my age, income, education, etc and then think, you did okay even if by chance and not skill.
Thanks Richard. It is amazing how many “mistakes” we can make over the years as we move along our financial learning curves and still manage to end up with enough. As you said, do the missed opportunities really matter at that point? We all have them. That’s why it is good to see ourselves as humble investors and even get a chuckle as we look back on some of our earlier boneheaded decisions.
Yup, I fear my do-over days are long gone. Now I hope our four children get to benefit from my “saving” strategy.
Not as curmudgeonly as most of your columns. I hope you aren’t losing your je ne sais quoi, Mr. Quinn.
(Joking, obviously.)
Your emphasis on savings is so important. Even if someone doesn’t have the knowledge or means to invest heavily, simply saving a small portion of their income regularly can make a significant impact over time.
Let me look up je ne sais quoi …..
okay got it.
I hope not, but it seems to be getting harder to get my curmudgeonly personality past Jonathan.
It’s okay to be curmudgeonly. Self-deprecating humor is fine and even welcome. But I ask that you avoid criticizing other writers in the comments section, I’d prefer you didn’t make dismissive remarks about younger generations, and it would be great if you could keep in mind that others can follow quite different financial paths and yet still be successful. None of us has a monopoly on truth.
If I may, I think those of us who write for HumbleDollar have an obligation to engage with those who take the time to comment on our writing. It’s only fair and adds value to HD. IMO
Who said anything about not engaging? I’m talking about being unnecessarily or unjustifiably negative about others.
Oh gosh. I didn’t mean to start a fight between two of my favorite authors. My apologies.
One thing for sure, I’d never make it as a politician, Cheers
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Politics might be tricky…
Well, I can think of one politician who routinely insults virtually anyone who disagrees with him or gets in his way. Still haven’t figured that one out.
Good point, me neither.
I agree about savings. For most of us it’s literally the foundation for getting ahead financially.