Several years ago, I wrote about "South Park's" Investing Lesson. I'm here to do so again, but from a different perspective. Why? Well, because the episode in question offered a way of thinking about things that I still find very helpful -- and funny, too.
Let's back up a mite now, so I can set the scene. It's from episode 217, where Mr. Garrison assigns a current-events report. The main characters decide to write their report on the gnomes that one of them has spied stealing underwear from his dresser. The priceless part of this episode is when the boys follow the gnomes to their cave and start asking questions:
Kyle: So what are you gonna do with all these underpants you steal?
Gnome 1: Collecting underpants is just Phase 1. Phase 1: Collect underpants.
Kyle: So what's Phase 2?
Gnome 1: Hey, what's Phase 2?!
Gnome 2: Phase 1: We collect underpants.
Gnome 1: Yeah, yeah, yeah. But what about Phase 2?
Gnome 2: Well, Phase 3 is profit. Get it?
Stan: I don't get it.
Last time I wrote about this episode, I explained how it offered a great metaphor for businesses. It was late 2001, and the Internet stock bubble had burst. In retrospect, it was clear that many companies had been bid up by investors who saw Phase 1 and dreamed about Phase 3 but never dug down to find out whether there even was a Phase 2.
Are you ready for Phase 2?
It's the same when it comes to retirement. If Phase 1 is save money for retirement, and phase 3 is retire, then there's a very important Phase 2: Invest intelligently.
You see, if you simply save your cash in a mattress or savings account, you likely will not earn enough to maintain your purchasing power after inflation and cost-of-living increases.
Focus on Phase 2
Phase 2 isn't just the step that many people shortchange; it's also the toughest. Moreover, while it's easy for me to tell you and for you to agree to invest in the very best stocks or funds, it's a lot harder in practice to go out and buy them and hold them for the long term.
One shortcut is to simply invest in a broad-market index fund that also charges a bargain-basement expense ratio. Vanguard 500 Index (VFINX), with its 0.18% expense ratio, is a perfect example.
Buy shares and you'll instantly be invested in 500 of America's leading companies, in dozens of key industries and niches. Want some examples? The following few representative holdings should give you an idea of the index's range: Wrigley
In the end, if you're willing to keep adding more money to your account, a simple index fund may be all that you really need to make Phase 2 work.
Let us help
Still, if you want to do even better than earning the average market return, you have a good shot at doing so. Our Motley Fool Champion Funds newsletter, for example, offers several dozen top-notch recommended mutual funds -- ones that our fund guru Shannon Zimmerman has researched deeply. His picks are beating the market by a whopping 13 percentage points.
I invite you to test-drive the newsletter free for a full 30 days (with no obligation), during which time you'll have full access to all past issues, allowing you to read about each pick in detail. I myself have been moving a lot of my non-401(k) money into some of these funds, expecting them to outperform the S&P 500 handily.
Longtime contributor Selena Maranjian owns shares of Johnson & Johnson and General Electric. Wrigley and Johnson & Johnson are Income Investor recommendations. Western Union is an Inside Value pick. The Motley Fool is Fools writing for Fools.