People often underestimate the impact of combining reasonable goals with unwavering consistency. Former New York Yankee Derek Jeter is widely considered one of the best baseball players ever. Yet, despite racking up more than 3,000 hits over his career, he never hit more than 24 home runs in a season, not even good enough to crack the top 500 single-season home run totals of all time. Instead, Jeter built a career by getting on base consistently.
Investing can work the same way. Too many people swing for the fences and end up doing more harm than good. So, applying these concepts to your retirement planning could grow your nest egg as much as 10-fold with minimal effort.
Here's how.
Rule 1: Get in the game
A common expression says the best time to start investing was yesterday. The second-best time? Today. There's truth in that. Mathematically, compounding does its best work for you late in the game.
Warren Buffett bought his first stock in 1942 but didn't hit a billion-dollar net worth until 1985, 43 years later. Since then, however, Buffett's net worth has grown to $112 billion, more than a 100-fold increase in fewer years than it took to hit the first billion.
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Procrastination can be human nature, and it's easy (especially for young people) to think that life is long and there will be plenty of time later. But those can be famous last words for your nest egg.
Life is long, but it's also a roller coaster. There will be plenty of reasons to put off investing throughout life, such as wanting to own a home, settling down, having kids, you name it.
That's why a helpful mantra is to pay yourself first. Make investing a habit that is as natural as buying groceries or paying your phone bill. Brokerages will let you set up automatic withdrawals so that you're putting money away without even thinking about it.
Rule 2: Do it like Jeter
With money flowing into your savings, how should you invest that money? The desire to get rich quickly is a human trait that goes back millennia.
However, it isn't easy to consistently make money following that path. Sure, everyone wants to find the next Amazon when it's dirt cheap, but that's hard. And you might get lucky once, only to lose that money when you take those profits and invest in the next supposed big thing.
Investors should always invest with a long-term mindset, thinking about how companies will perform in five, 10 or even more years from now. Remember to diversify your portfolio: We want steady base hits, not strikeouts trying to hit home runs.
If that's not appealing, investors can easily use an index fund like the Vanguard S&P 500 ETF (VOO 1.00%), which tracks the broader stock market. There is no shame in aiming for average stock market returns. The market may fluctuate in any given year but it has historically averaged roughly 10% annual returns over the long term.
Steady double-digit percentage growth adds up, which might not impress your Uncle Charlie, but it will build a hefty portfolio if you give it enough time.
Rule 3: Understand your goals and how to reach them
If you consistently invest in things like an S&P 500 index fund or blue chip stocks, you'll maximize your chances of success in the markets. The last part is adjusting your strategy to fit your goals, needs, and risk tolerance.
Suppose you're 30 years old and you have $10,000 to invest. If you put that into an S&P 500 index fund and contribute $25 every two weeks until you're 60, you'll have about $320,000 if the market does what it's averaged for decades.
Are you starting at age 45? You're not too late; you can start at zero and potentially have $1 million in 20 years if you contribute $1,316 each month.
The point is that you can build a plan based on your situation and then automate it so that the money is taken and invested without you lifting a finger. That's building wealth with an "easy" button.
