donít have to be Warren Buffett to be richer.
do you need to have him hold your hand to get there.
a recent study shows most Americans are deeply uncertain
about handling their money, and theyíd like Warren
Buffett to help them figure it out.
you are among them, take a deep breath and reassure
yourself. Remember, you donít need Thomas Edison to
help you turn on the lights. You donít need Oscar de
la Renta to help you get dressed. You donít need Steve
Jobs to help you make phone calls or search for
information. And you donít need Julia Child to help
you bake a cake.
might be nice, but itís not crucial.
you donít need Buffett for investing. Perhaps youíd
like him to appear like your fairy godmother, wave a
magic wand and turn your humble 401(k) or IRA into a
pile of millions. But the study just done by Age Wave
and Merrill Lynch shows that most people arenít
necessarily looking for millions. They simply want to be
more confident that theyíre on the right track so they
can continue to live comfortably within their means now
81 percent have no idea what they will need for
retirement. They are torn between what they think they
should be doing with their money and what theyíre
actually doing. For example, the survey found that
people on average think they should be saving 25 percent
of their income for the future. Yet, theyíre actually
saving 5.5 percent.
know they could cut back on some spending, but that
doesnít necessarily mean they do it. They second-guess
their money moves more than anything else ó more than
rethinking what theyíve done on their jobs or how theyíve
treated their family and friends. And they donít talk
about it. More than 70 percent consider income and
saving a taboo topic.
give yourself a break. Although 65 percent suggest they
get paralyzed because the language of investing and
financial planning is confusing, you donít need Warren
Buffett to rescue you.
forefathers learned words like light bulb after Thomas
Edisonís inventing spree. The current generation
learned "app" and "FaceTime" as they
handled new phones. So you can certainly learn the few
words you need to invest your money effectively.
you admire Buffett, learn one of his favorite vocabulary
terms: That term is "index fund." Itís a
no-brainer mutual fund that Buffett suggests people use
instead of seeking experts to pick the biggest winning
stocks of the stock market. Why does Buffett suggest
this? Because most investing pros fall short when it
comes to picking winners and avoiding losers in the
stock market. Index funds donít try to pick winners
and avoid losers. They just buy all the stocks that make
up the stock market or much of the stock market, and
then hold on through good times and bad. You can be
ignorant about the stock market and still be a
successful investor by buying a no-brainer index fund
known as "a total stock market index fund" or
a "Standard & Poorís 500" or
"S&P 500 index fund."
you need one other investment: bonds. You can buy bonds
in a 401(k) or IRA through a "total bond market
index fund" if you want to make this really simple.
even less bother than picking two funds? Then learn the
term "balanced fund." This fund gives you
stocks and bonds ó typically putting about 60 percent
of your money into stocks so the money grows with the
power of the stock market, and putting about 40 percent
into bonds so you have insulation when the stock market
goes through one of its nasty spells. A balanced fund is
sweet because it provides you with one-stop shopping for
a 401(k) or IRA.
401(k)s donít have balanced funds. If your 401(k)
doesnít have one, another type of fund will do. Itís
called a "target date fund." This is a fund
that is tailored to the general time frame in which youíll
retire. Pick one that includes a date around when you
will retire, and thatís all you will need year in and
year out because a fund manager will continually buy a
mixture of stocks and bonds, getting more cautious as
you approach retirement.
your 401(k) target date fund happens to be one that uses
index funds, Buffett would be pleased. But not all do.
Still, donít let that stop you from this simple
approach to investing. Some target date funds may not be
exactly what Buffett has in mind, but they will make you
a successful investor even if you donít know anything
about the stock market.
you think you need a pro to figure out when to move in
and out of the stock market, forget it. Repeated studies
by academic experts show that even the brainiest of the
pros canít figure this out with any regularity. Itís
more important to pick mutual funds that charge you low
fees, and low fees are the key reason why index funds
tend to be outstanding. Find low fees by looking at one
number called the "expense ratio," or ask your
401(k) call center 800 number. Whatís low? A 0.50
percent fee is a better deal than 1 percent, and 0.18
percent is even better. Imagine investing $10,000 one
time and earning 7 percent a year for 20 years. With
expenses at 0.18 percent, youíd end up with about
$37,300. With 1 percent in expenses, youíd just end up
do you know if you are saving enough?
a rule of thumb, if you start saving and investing 10
percent of your pay every year ó beginning with your
first job around 21 ó you should be OK. If you didnít
do that in your 20s, by your 30s, you will need to save
12 to 15 percent. If you are close to retirement, you
can apply a simple calculation: At retirement you will
want 10 to 12 times your last annual income saved. But
these are rules of thumb. To get a better sense of your
own future, try a retirement income calculator such as
if you arenít saving enough?
an exercise used by financial planner Sue Stevens. Each
year, she looks at her credit card account and bank
accounts and asks herself: "What did I buy that did
not give me pleasure?" Then, she stops buying that
item or items, calculates the savings, and immediately
routes the money sheís going to save into her
retirement accounts. Be aware of the entire process.
People shoot themselves in the foot by looking for
savings, cutting spending on one item, but then letting
the money float away anyway through inattention. The
only way to make a cut in spending work is to
immediately go to your benefits office or the website
for your 401(k) or IRA and change the amount you will
distribute automatically from your paycheck each payday.
a simple process that anyone can do, and you donít
need Warren Buffett to do it.