Newsweek - USA (2020-03-20)

40 NEWSWEEK.COM MARCH 27, 2020

STOCKS

Partners illustrates the power of saving

just a percentage point or two more an-

nually, looking at a hypothetical saver

with an annual after-tax income of just

under $50,000. If she saves 3 percent of

her take-home pay a year and earns 6

percent on her investments (a reason-

able assumption for a balanced mix

of stock and bond funds), she’ll end

up with about $117,000 after 30 years.

If she moves more of her money into

stocks, she might be able to boost her

average annual returns to 8 percent, in

which case she’d end up with nearly

$168,000—an increase of 44 percent.

Not bad. But look what happens if

that investor instead raises her savings

rate by 2 percentage points. She still

earns 6 percent a year on her account,

but she’s now saving 5 percent of her

net income—which, by the way, takes

less than $20 a week more out of her

paycheck. After 30 years, she’ll end up

with far more money—about $195,000,

or 67 percent more than in the original

example. And she’ll have achieved that

boost to her wealth without taking on

any additional market risk at all.

It’s the rarest of things in life: an

actual sure thing, a 100 percent guar-

anteed way to boost wealth that isn’t

subject to the whims and vagaries of

market forces, looming pandemics or

even our own emotions. These days,

that sounds like a pretty sweet bet.

itching to take more definitive

action to protect your savings? Eager to

regain a measure of control over your fi-

nancial future in a market and world in

which control feels increasingly elusive?

Here’s the single best move you

can make now: Boost the amount of

money you’re saving for long-term

goals like retirement, instead of try-

ing to pick the right stocks or figure

out whether you should buy or sell. If

you’re contributing, say, 6 percent of

your pay now to your 401(k), go up to

7 percent immediately, then go up an-

other percentage point a few months

from now. Rinse and repeat until,

ideally, you’re setting aside at least 10

percent of your income for retirement.

The more years you have to invest, the

bigger the multiplier effect this simple

strategy has on your wealth—a greater

impact, in the end, than how much (or

little) you earn on your investments.

A study by the company Pension

PUMP UP YOUR SAVINGS

MISSED

10

BEST

DAYS

FULLY

INVESTED

6.06%

RETURN

-3.80%

-7.02%

MISSED

20

BEST

DAYS

MISSED

30

BEST

DAYS

MISSED

40

BEST

DAYS

MISSED

50

BEST

DAYS

MISSED

60

BEST

DAYS

$32,421

$16,180

$10,167

$3,246 $2,331

$4,607

$6,749

-5.47%

-1.95%

0.08%

2.44%

The Price of Selling Out

Gains in stock prices typically come in short, sharp,

impossible-to-predict bursts. Miss even a few of the best days

over long periods and your proɿts can drop dramatically; miss

more than a few and you could easily end up losing money.

How $10,000 invested in

stocks fared from 2000 to 2019

(Percentages represent the

average annual gains/losses earned

over the 20-year period)

5

.

NOTES: Performance calculations are based on the S&P 500, with dividends reinvested, but not including any investment fees

or operating expenses. Data is for the 20-year period ending December 31, 201. Source: - .P. Morgan Asset Management