What's a bum like you doing with a portfolio like that?
People in my family ask me a lot of questions. Sometimes it's "How do you lose that much hair in a single year?" Other times, it's asking for financial advice, like, "How can you have saved so much for retirement?" or "What stocks are you investing in?"

On the first point, I refuse comment. On the second set, I usually have to explain that investments aren't the engine to my growing portfolio. Truth be told, good stock-picking has little to do with it.

Sure, we were helped by the fact that we never held those bubble-era bleeders like Yahoo! (NASDAQ:YHOO) and Time Warner (NYSE:TWX), and we also resisted the urge to get into the buggy-whip -- I mean, newspaper biz -- even though companies like The New York Times (NYSE:NYT) and Tribune (NYSE:TRB) have occasionally looked cheap.

And recent outperformance in well-timed investments like Harley-Davidson (NYSE:HOG), Ann Taylor (NYSE:ANN), and other turnarounds pushed us along to returns in the mid-teens. But mid-teens returns won't triple your money (that quickly).

Here's the easy way for a couple of regular American wage-earners to triple their retirement accounts to well more than six figures in just a few years. Ready?

Save that money. All the time.

Simple math, powerful results
If you want to have a comfortable retirement, saving is much more important than picking better investments, especially in the beginning years. I've been telling friends and family this for years, and it's based on some reasoning that ought to be intuitive to anyone: Until your portfolio is pretty hefty, the amount you can save each year will dwarf the amount you stand to make with market-beating investment returns.

Let's take a very obvious example. If you have a decent sum of $50,000, and next year you earn what I think will be a market-beating 10% return on it, you will have added only $5,000. Do the same the following year, and you'll add another $5,500. That's certainly nothing to sneeze at, but look at it another way and it's a measly $416 or $458 a month. People who watch their spending carefully can easily find that much in a budget to pack away. Those who squeeze even more can do better yet.

I know this is possible, because we do it at our house. I've also run some numbers through a handy spreadsheet called the lifetime savings calculator that you can download for use with Excel. It let me see just how much of an effect some small penny-pinching habits can have over a lifetime. Here's a table of suggested savings, with 10- and 20-year total returns at a 10% return rate.


Savings Per Month

10 Years

20 Years

Domestic beer instead of pricier brand




5% back on gas and groceries




Basic cable instead of premium




Thermos o' homemade instead of boutique brew




Leftovers for lunch instead of the daily burrito




Used cars instead of a shiny new egomobile








Free money, anyone? If you pack away those hard-earned extra bucks in an employee-sponsored 401(k) plan, and you have employee matching, you will see an instant, guaranteed return. Save $5,000 with a 25% match, and you suddenly have $6,250. Or, to think of it another way, that 25% employee match is the equivalent of a guaranteed, two-year market-beating return on whatever you save. It's simply insane not to take advantage of that kind of free money.

If you don't believe my barnyard math, take it from people with bigger brains, smarter computers, better suits, and, I'll bet, higher salaries. The folks at Putnam Investments made headlines last fall with a model saver named Average Joe. They had him earning $40,000 a year, a 3% raise, and 50% employee matching, and then they looked at what various savings strategies would have yielded between 1990 and 2005.

Saving more money had a far greater influence on Joe's retirement balance than better fund-picking. When Joe picked a conservative portfolio of underperforming funds, he ended up with about $40,000. When he picked a more appropriate, stock-weighted mix of funds in the top 25% of performers, he ended up with only $5,000 more over the period.

You think Joe would rather have had $146,000 in his portfolio? The key to getting there was simplicity itself: Save more. An 8% savings rate, even with the conservative asset allocation and the bottom quartile funds, would have gotten him there. A 6% savings rate under those circumstances would have yielded $120,000. A 6% rate! That means Joe would have had to forgo a minute $2,400 that first year -- the amount a lot of average Joes blow on booze and smokes alone.

Foolish bottom line
Of course, I don't want anyone out there to think I'm advocating lackluster investing. In the best of all possible worlds, you save like crazy and you earn like crazy, too. But the point remains: For beginning investors and retirement savers, the real key to future riches is finding money to save from yourself, not finding a couple of extra percentage points' worth of market returns.

Of course, as your nest egg grows, the math becomes more complex. As the sums become bigger, performance matters more, relative to your saving power. And as you become older, yearly price fluctuations make things even more complex. That's one reason we lay off the stock talk for a more holistic approach in our Motley Fool Rule Your Retirement newsletter. Editor Robert Brokamp digs into complexities like estate planning, overseas retirement, and asset allocation, and he shares the wisdom of renowned experts as well as the sharpest community members. A free peek is just a click away.

This article was originally published Jan. 25, 2006. It has been updated.

Fool contributor Seth Jayson is addicted to saving. At the time of publication, he had no position in any firm mentioned. View his stock holdings and Fool profile here. Yahoo! and Time Warner are Motley Fool Stock Advisor picks. The New York Times is an Income Investor pick.