Early Retirement – Patience, not Perfection
I have a theory.
It’s just that. A theory that’s not based on any study or survey, but by people I’ve talked with through the years. Most would like to retire early, but they are self-defeating before they even start.
“I don’t know anything about investing.”
“It’s too complicated.”
“It’s too risky.”
And the big one … “The money I set aside now is never going to amount to anything substantial.”
My Theory? These are excuses used by people who think they have to be perfect to plan for retirement. In fact, planning for retirement (early or not), requires patience, not perfection.
That is good news for us all.
You won’t be Perfect
In my first podcast appearance I was the guest of Bob Wheeler. Bob is a Certified CPA, Speaker, Author, and CFO of the World-Famous Comedy Store in Los Angeles. He has a passion for helping people with personal finance.
As we talked, our conversation took us to this area about financial mistakes and concerns about ‘getting it right.’
“The goal here for me is, sometimes I’m going to get off the path,” Wheeler shared with our audience. “I get a little cocky. I think I got it handled like I know better and then I get myself in trouble.”
And then we add the pressure of trying to keep up with other people’s claims of success.
“Some people will say ‘Oh yeah, I never made a mistake,’ and then the anxiety of trying to pretend that that’s true, I don’t want that.” Wheeler says the key is “I’d rather just be real and say ‘man I messed up pretty bad.”
When I started investing in the 80’s, I was infatuated with ‘penny stocks.’ I could easily envision buying hundreds of dollars of stock at 4 cents a share and getting rich. Surely one day this will reach a dollar – I would tell myself. Nope. Turns out that reaching 0.00 is a lot easier and a thousand times more likely than those shares ever reaching a dollar.
Everyone makes mistakes! When you do, don’t beat yourself up. Learn from it, and get back to work.
Winning with Patience
If you can get your mind away from thoughts of getting rich quickly, you will very likely be able to get rich slowly. As an added benefit, you’ll also make fewer investing mistakes.
The saying goes “Time in the market beats timing the market.” It means the most important thing about growing wealth is not betting on when the market (or individual stocks) will go up or down. It’s consistently investing your money, paycheck after paycheck. In the long run, just being an average investor getting an average return, will put you ahead of nearly everybody else. The best part – it requires little work, or investing expertise. Just pick a few high quality index funds, stay committed, and let time do the work.
Here’s an example of the power of time. We all know investment markets rise and fall, but over the past 30 years, the S&P 500 has returned an average of 9.7% (dividends reinvested) annually. So let’s say you open a retirement account with nothing to start, contribute a set amount every two weeks, and just get an ‘average’ return.* Here’s how those accounts could grow.
| Bi Weekly Contributions | $50 | $100 | $250 | $500 |
|---|---|---|---|---|
| 10 Years | $21,888 | $43,776 | $109,440 | $218,881 |
| 20 Years | $79,523 | $159,047 | $397,617 | $795,235 |
| 30 Years | $231,288 | $462,577 | $1,156,442 | $1,922,883 |
This past year has felt pretty rough for investors, right? COVID, businesses closing, political unrest. Did you know that from June of 2019 to June of 2020, the S&P 500 gained 9.7% with dividends reinvested? Right on that 30 year average? Who’d of thought?
Wheeler reinforced the point about committing to an investment plan. “You’ve got to stay the course,” he said. “I think what happens is people get cold feet at the wrong moment and once you’re out (of the market), you’ve lost the money.”
The Book I Wish I’d Read Earlier
If you don’t read any other book about retirement investing, read this one. John Bogle’s Little Book of Common Sense Investing The Founder and CEO of The Vanguard Group is no longer with us, but his wisdom lives on in his book, which is rated 4.7 out of 5 on Amazon.**
I wish I’d followed Bogle’s advice even sooner than I did. Get it. You won’t be sorry.
Get Back on Track
My wife and I invested in our 401K’s throughout our marriage. At times we’d reduce our percentage of contributions, but we’d always get the company match and we never once stopped. When times were better, we’d increase our contribution percentage again. We got back on track.
We retired at 60 and 58.
No doubt you will encounter struggles and failures. It’s how we recover that matters – financially or personally. So when you have that setback address it head on, and get back to your plan.
And then, just be patient.
*Past results are no guarantee of future returns. We are not professional financial advisors and recommend that you work with a fee-only Certified Financial Planner to craft an investment and retirement plan specifically for your needs.
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