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The No Effort Investment Strategy

 

You have savings but no time to put it to work. I understand. That’s why you need a no effort investment strategy. Set it and forget it with no worries.

These days just hearing the word “investment” is enough to send shivers down your spine.  It’s been four years since the financial crisis and while we are definitely doing better, our wounds still ache. Everybody knows someone who lost a job or a huge chunk of their retirement savings.  Depending on whom you ask you’ll hear a different reason for the crisis but the one take away from the whole thing is that now some people are afraid of the stock market.

With those wild price fluctuations and monster crashes, why risk your money?  Most people are just holding on to huge savings accounts that blow your mind at 1.0% interest.  Now, while you have near zero risk with your money in a savings account, you’re also making near zero investment gains. In fact, you’re losing money because inflation is about 2% a year.

If you save $5,000 a year from the first year you start working until you retire, you’ll only have saved $246,190 at 1% interest.  Probably not enough to retire.  However, if you put it in at the yearly average market return of 10% over 40 years you will have $2,659,116 (yes, millions). Quite a difference, no?

“But Andrew, it’s so risky and it’s too difficult, I don’t have the time to manage it.”

Don’t worry my friend, it’s not nearly as difficult or risky as you think. Allow me to walk you through my patent pending No Effort Investment Strategy step by step.

Step 1:  Choose Your Investment

Woah! A lot can happen in 40 years!

A lot can happen in 40 years!

Every day you read in the news that Apple’s stock is up, Google’s is down, Coca Cola’s is sideways and McDonald’s workers are on strike;  phew, it’s a confusing mess out there! Ignore it.  Let the crazy people be crazy, let’s stay focused.  There are two types of simple, set it and forget it investment types we will look at.  A market average and a managed fund.

There are many market groupings already made for us, three of the most popular are the S&P 500, the NASDAQ and the Dow Jones Index.  A market grouping is just a bunch of stocks that allow you to be diversified and reduce overall risk.

All three Indicies have solid, storied histories of constant returns and a clear method for how they choose what stocks are a part of their indexes.  All of the indicies span across a broad set of stocks (large blue chip, growth, staple goods, etc..).  They may not give you the most aggressive returns the stock market has to offer but historically their return has been very solid and stable.

Could it be easier?

Could it be easier?

The above indicies are terrific, however, it is understandable that not all of us have an appetite for risk.  Some people are very close to retirement and don’t want any risk at all.  That’s completely understandable and until recently, being able to moderate your level of risk would involve quite a lot of active investing across a wide variety of investment products.

This year a new website called Betterment was launched and it changes everything.  Not only is your money liquid and available to be withdrawn at a moment’s notice but you also have a risk slider where you can tone down how aggressively your money is invested.  Expertly diversified with the click of a mouse, it’s too easy!  It also projects a best and worst case scenario for your money so you can count on your money being there when you need it.

Probably the best part of Betterment is how it acts like a savings account.  You easily transfer money in and out just like any savings account with no notion of trades.  So to convert from your “savings account” way of life to your “Betterment account” way of life will be nearly seamless.  The only difference is your money will actually work for you! Take a look at our Betterment Experiment where we put our own money on the line to give you an honest Betterment review.

Step 2: Relax

Sure there was a huge spike in the market in 2000 and a giant dip in 2008 but look at the graph 3-4 years after any ridiculous stock event.  The market trend gets back on track with you earning a serious return on your investment.

It isn’t so much that you were a genius at picking stocks (because nobody really is), you just had the resolve to stay the course.  You didn’t flip out and sell when things were bad, in fact, you don’t even plan on selling until you retire.  Every year, you keep tacking that 10% gains onto the previous year’s balance + gains leaving you with far from linear growth.

The whole idea of investing in an Index, Betterment or other similar tools is long term gains.  Ideally, you’re going to just deposit money and ignore the account.  Don’t get caught up in the latest news scare, and try to refrain from really looking at the numbers more frequently than once a month.  You will not get rich overnight, almost no one has.  Ask Bill Gates how long it took for him to get as rich as he did and how much work it involved.  The beauty of the stock market is you invest in people like Bill Gates and let them do the work for you.

Step 3: Retire Early And Wealthy

Normal people retire at 65 but that doesn’t mean that you should. I aspire to retire at least 20 years before then and you should too. It would be nice if I came up with a million dollar idea or won the lottery but I’m not going to count on it. Slow and steady wins the race.

Ideally, the most work you should have to do is open your account at a brokerage firm like Ameritrade, eTrade, Charles Schwab, etc… or Betterment and transfer your money slowly over time. The only difference between the brokerage firms is that you’ll actually have to place a trade into the S&P 500 (.INX), NASDAQ (.IXIC), or Dow Jones (.DJI).

Good luck, and remember, every day you don’t put your money in the fast lane is an extra day you have to show up at the office.

*Enjoyed this post, and ready for even more stellar investment advice? Yeah, you are. Visit LMM’s How to Invest Money page for articles, podcasts, and the actionable info you need to start investing now.

Featured Image Photo Credit: “Sleeping newborn infant” by Andrés Nieto Porras on Wikipedia

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2 responses to “The No Effort Investment Strategy”

  1. Good advice. There are always going to be irrational investors out there that pollute the markets with noise. Irrational (overconfident) investors through their own noise will tend to trade more giving the rational investors more information found in the prices of stocks which will eventually move stocks back toward their intrinsic value.

    • Andrew says:

      That was definitely a mouth full! :)

      I agree, the more crazy pointless trades that happen, the more data we have on specific stock which will help us find its true price.

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