What if I told you the secrets to losing weight are:
- Decrease your total calorie intake, i.e., eat less food.
- Increase your energy expenditure, i.e., exercise.
Yup that is it. Yet, the fitness industry is a nearly $100 billion global industry. How are they doing it? Because people want quick and instant results. Therefore, fad diets, fancy exercise equipment, supplements, and fitness programs have gotten everyone confused. Yet at the core of it all are two things: eat less and exercise more.
What if I told you, for the average investor, the secret to investing is to invest in the stock market for 20-30 years, by;
- Investing in a Total Stock Market Index Fund and a Total Bond Market Index Fund or
- Investing in a Target Retirement Index fund (a.k.a. Target Date Fund)
Yup that is it.
There is no need for a large-cap or small-cap fund, no bitcoins, no silver, no gold, or other precious metals and not even real estate. None of these are needed to become a successful investor. Yet, just like the fitness industry, the financial industry has made it complicated with financial advisors, annuities, day traders, and a bunch of overinflated financial products that leave the average investor just more confused.
Let’s keep it Simple.
- Look at all the top millionaires and billionaires – most built their wealth as entrepreneurs, not by investing in the stock market. However, once they become rich, they all invest in the stock market.
- You are not going to become a billionaire just by picking stocks. Nope. However, you can become a millionaire by picking one stock and letting it ride for 20-30 years.
Let’s look at a 30-year-old with $O to their name that wants to retire at 65. If they start investing $500 a month in the stock market today and get an average return of 8% interest each year, by the time they reach 65, they will have $1,033,900.82 in their bank account. Yup, millionaire just by investing $500 a month. Imagine investing 2-3X more. The secret to long term investing is letting your money work for you, through compound interest.
It is rumored that Albert Einstein famously said that compound interest is the most powerful force in the universe. “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”
Whether or not he said it, that has become my financial motto. I strongly suggest you adopt it.
Investor.gov – Compound Interest Calculator
An 8% return is conservative. According to business insider, “The average stock market return for 10 years is 9.2%, according to Goldman Sachs data for the past 140 years. The S&P 500 has done slightly better than that, with an average annual return of 13.6%”.
Use 8% for your numbers.
To reiterate, investing $500 a month over 35 years will make you a millionaire. Believe it or not, some of you are reading this and saying, “no way, that’s too simple.” Once again, keep it simple. There is no secret to any of this.
The question is, where do you invest that $500?
You have options, but below are the two that are common amongst the investing community:
- When you are just starting to invest, all your money should go to stocks. Forget about bonds. A U.S total stock market index fund (the company does not matter, Vanguard, Etrade, Schwab, Fidelity, etc.) is where you should put all that money. Once you get closer to retirement, you want to buy a total bond market index fund to balance and protect your investments.
- Target retirement/Target date fund: This is the autopilot if you don’t want to manually have to buy bonds and rebalance your portfolio closer to retirement. With the target date fund, it will automatically do the balancing for you. For example, our 30-year- old above would retire in 2055. Therefore they would buy a target date 2055 fund, set it, and forget it.
That is it.
Investing and becoming a millionaire is not complicated. Do you need a financial advisor? Nope.
The above is for 99% of the population. There are other ways to diversify your portfolio. You can invest in real estate, bitcoin, precious metals, or a million other things; however, if you want to simplify your life, just invest in a Total Stock Market Index Fund.
Yes, the market will go up and down, but over 20-30 years, the market will be up. No matter what you see going on in the stock market, just keep investing that $500. The worst thing you can do is not invest and not let the power of compounding work for you.
