How Should You Invest Your Retirement Money?
There are many strategies for growing your retirement nest egg but the most ignored may be time itself. It's on your side. The earlier you start, the more you’ll have. So start today. Tweet
If you think investing has to be exciting...
...invest in Texas Hold'em.
But if you think investing has to be profitable...
invest in an index fund.
When it comes to retirement, you should never “fritter and waste the hours in an offhand way.”
If you don’t know where that wisdom comes from, take a moment to watch and listen to this TED talk by multimillionaire investment theorist Mick Jagger as he explains all you need to know about retirement savings.
Jagger is explaining that it’s all about the pure math (and common sense): the longer you save, the more money you’ll have. So we’ll, ahem, assume you’re doing that already with a 401K or IRA.
(We know you may not be. According to a paper by the Economic Policy Group which analyzed U.S Federal Reserve data, 401K participation has declined in the 21st century: “For families headed by prime-age workers (age 32–61), participation in any type of plan fell from 60% in 2001 to 54% in 2016.” The first step is sign up for a 401K if you have access to one. If not, set up a standard or Roth IRA today. That’s just basic, friends.)
So the bigger question really is where to invest that money?
The bigger question really is where to invest that money?
Here we hand it over to the late Jack Bogle, the investing pioneer and rebel who founded the nonprofit mutual fund giant Vanguard and invented the concept of stock market index funds, where your money is invested in the entire market rather than individual stocks. Market goes up: you’re good. Goes down: not so good. If your investing strategy involves roulette, this is the rough equivalent of betting red or black.
Bogle, of course, spent his life advocating for index funds as the primary retirement investment vehicle despite his shortcoming as a rhythm guitarist. Why? Because it will get you where you’re going cheaply, effectively, and most important, effortlessly.
Men’s Health magazine got to sit down with Mr. Bogle before he passed away. Here are three powerful bits of his retirement investing wisdom:
- On indexing:
“I look at indexing as being simple, and sad to say, boring. That’s good! Be bored by the process, but elated by the outcome. If you never peek for 50 years after age 20, you’ll rip that first 401K statement open at age 70 and I recommend you have a doctor on hand. Because you’ll go into a dead faint. Your heart might even stop. It’s going to be an amount of money you can’t even imagine.”
Index investing: ‘Be bored by the process, but elated by the outcome.’
2. On stock picking:
“I ask people: What is the intellectual basis for indexing? Reduce cost and you maximize your fair share of the market return. What is the intellectual basis for active-managing or stock picking? It’s basically, I can do better. Is that an intellectual basis? No! It’s a hope, it’s a brag, it has no chance of ever being realized in the long run.”
3. On keeping it simple:
“The average person who’s struggling with bringing up children, financial pressures, and keeping one’s job, just doesn’t have the luxury of being able to think about investing. The luxury you do have is being able to set a certain course where there are a lot worse things than simply putting 50 percent of your money in a stock index fund and 50 in a bond index fund, periodically rebalancing and hold it forever. I won’t say this is the best investment strategy ever devised. But I will guarantee you that the number of strategies that are worse is infinite.”