Guaranteed 10%, 25%, 100% Returns!

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By Robert Brokamp (TMF Bro)
May 29, 2002

A couple of weeks ago, some of us Fools attended the RetireMint conference in New York City. The conference, featuring a mix of financial media celebrities and retirement experts, was intended to teach individual investors and benefits specialists about the best ways to put the American public on firmer financial footing for their golden years.

Though we learned many things -- such as how it feels to pay $3 for a 10-oz. bottle of Pepsi  -- there was one lesson that was regularly emphasized: You can increase the value of your retirement savings by 10%, or 25%, and even 100% -- guaranteed! Plus, this strategy is completely in your control and not subject to the whims of stock markets or interest rates.

Ready for this surefire formula? Here it is: Save more.

Yes, we can hear you booing. You wanted to hear about some new strategy of investing based on the square root of the cosine of the P/E of a stock. But the return you earn on your investments plays second fiddle to the ultimate determinant of how much you're worth, and that's how much you sock away.

Let's say you made a contribution of $2,000 to an IRA on January 1 of this year, and earned 10% on that contribution. At the end of the year, you'd have $2,200. But let's say you instead made that $2,000 contribution, but then managed to contribute another $84 per month throughout the year (reaching the $3,000 annual contribution limit to an IRA), and earned just 6% on your investment. At the end of the year, that account would be worth roughly $3,156.

We admit that, over time, the higher return will compensate for the smaller contribution. But a stock-type return is never guaranteed, whereas a higher savings rate is, as they say, money in the bank. And if you can combine the higher savings rate with a higher earnings rate... well, your golden years can really be golden.

We know you can do it. Call the people who run your IRA or 401(k) and tell them to invest an additional $50, $100, or even $200 a month (assuming this won't push you over the contribution limits). Really, it won't hurt that much. Your retired self will thank you.

If you're interested in saving for a goal other than retirement, check out our Short-Term Savings Center and learn how to get the most from your savings. What's that, you say? You can't afford to sock away any more money? Well, perhaps the good folks on the Living Below Your Means discussion board can help you find ways to spend less and save more.

Robert Brokamp (whose wedding anniversary is Sept. 11) visited Ground Zero when he was in New York. Two truths were made very clear: 1) there are more important things in life than money, and 2) New York has recovered fabulously -- what a city!