The November issue of Motley Fool Hidden Gems comes out today, which (somewhat incongruously, perhaps) reminds me that it may be time to cut down on my coffee drinking.
As many of you are aware, I already make every effort to keep within my own rule of "no third cup of coffee before 7:00 a.m." And considering that I rarely get out of bed before 7:15, it's a rule that really shouldn't even need to be made. Only in a universe that conforms to the rules of mathematics that might be dreamed up by Douglas Adams could I so consistently drink so much coffee before the hour that I actually wake up. Someday, advanced Newtonian physics will be applied to see how I do it. But I digress, and you get the point: I enjoy coffee. And if it is possible to enjoy it too much, I suppose I do. But that's just how I roll, Homes.
And yet. And yet ...
It is nearly impossible to read a personal finances column that does not sooner or later make the point that a lifetime of financial security, or a comfortable retirement involving sand, gentle waves, aquamarine water, and so much more, is available if only you'd give up that $3.00 daily latte and invest your money instead. (I personally don't drink the expensive stuff, but I make up for that in volume.) The Fool has written those articles, as has the SEC and most other financial publications at one time or another. And it's true -- $3.00 a day, 365 days a year, really adds up. Investing an extra $1,000 a year starting at age 20 or so, assuming historical rates of return for stocks, makes for real savings 40 or 50 years later.
The coffee example is trotted out not to pin the blame for any national crumbling retirement safety net solely on Starbucks
Rather, the cup-of-coffee-a-day straw man is meant to show that with only the tiniest bit of discipline -- both on the savings side and on the side of consistently putting that money into the market -- you can radically improve your financial life.
Commit regular savings on a disciplined basis to the market
There's widespread agreement that the way to a better financial future is to find -- one way or another -- some savings and to have a method you trust to regularly get those savings invested. The savings side might come from more disciplined coffee inhalation, or any number of other means. And that's the first step. Putting that money into an intelligent long-term savings plan is step No. 2.
Whether you're following the advice of a stock-picking publication or using one of the many other ways to manage your own money, you should have a regular plan for adding new money to the market on a disciplined basis. For many people, this is accomplished best by participating in an employer-sponsored 401(k) or other deferred-compensation plan. Other methods include making regular contributions at the beginning of the year to a Roth IRA. Receiving a monthly subscriber-based publication might very well act as a trigger to remind you to get some more money committed to your long-term savings with post-tax dollars, but you can also participate in monthly or weekly automated deductions from your banking or brokerage account into mutual funds, dividend reinvestment or direct investment programs, and so on.
This brings me back to the latest monthly issue of Hidden Gems, the publication for which I contribute some analysis. Every issue contains two small-cap stock recommendations, and many of our readers choose to immediately invest in the two each month. Following that strategy since the inception of the newsletter in July 2003 would have worked extraordinarily well, with returns of 23% for every dollar put in (before costs) as compared with the market's returns of slightly less than 6% (before costs) for each such invested dollar over that time period.
That strategy isn't right for the majority, of course. Many investors use their own judgment to determine which small-cap companies, if any, are right for them. Hopefully, they've matched -- or even improved upon -- the newsletter's returns. (Doubling down on one of the six recommended stocks that has more than doubled, such as CNS
Foolish final thoughts
Many great consumer stocks demonstrate the power of unthinking commitment of small increments of money on a regular basis, which turn into huge sums of profits over the long term. Hershey
Find your own path to plan your savings, and find the best way you can stick to a regular investing regimen. If you'd like to see how we roll at Hidden Gems, we offer a totally free no-risk 30-day trial.
Bill Barker once strategized with his co-workers on patronizing every Starbucks store in Washington, D.C., in a single day, and then writing about the experience. His doctors have warned against it, the company won't foot the bill, and his colleagues just nod nervously whenever he brings it up these days. Bill owns none of the companies mentioned in this article. Coca-Cola is a Motley Fool Inside Value recommendation. The Fool has adisclosure policy.