Q: What’s the biggest financial regret?
A: Not putting aside enough money for retirement.
That’s the result of a 2016 Bankrate survey, which found that most people regretted “not saving for retirement early enough”.
A 2015 American Century survey came to the same conclusion: nearly all participants said they regretted not squirreling enough money away for their retirement.
How can you avoid this regret and accumulate money for your retirement? One of the most powerful ways to grow your retirement account is to invest consistently over time. Even modest contributions—when made regularly—can really add up over many years.
Contribute regularly & steadily to your accounts
It’s easier to contribute to your retirement each month, ideally directly from each paycheck, than to try to scrape together some cash after all the bills are paid, so the first step is to decide upfront how much and how often you’ll add money to your retirement accounts. Then set up a contribution schedule so you’ll consistently take action.
Many investors intend to add to their investments every month, but they don’t stick with it. They go on vacation and forget to make their contribution one month or they decide to skip a month because they’re feeling short on cash. But if you really want to grow your retirement account, you need to make it a habit.
We believe the best solution is to automate your contributions by setting up an automatic investment plan with a fund company or broker. Every month, a set dollar amount is transferred from your bank account into your retirement or brokerage account and immediately invested. This eliminates the need to remember to add to your account; it’s done for you.
Even modest contributions add up over time
If you want to grow your retirement account, you’ll want to consider investing your contributions in a stock fund like the Upgrader Fund (FUNDX).
If you had invested $100,000 in FUNDX in December 31, 2001, your initial investment would have grown to $250,667 by September 30, 2016. You could have dramatically built on these gains if you’d consistently added money to your account every month.
If you’d added $500 to your FUNDX investment every month, you would have contributed an additional $88,000 to your portfolio over the years, but your account would have grown far beyond these contributions. The gains on these contributions would have compounded over time, causing your overall account to grow to $398,534! In other words, these modest additions helped you accumulate nearly twice as much, and that additional money could substantially improve your quality of life in retirement.
If you were able to increase your contributions over time to $750 or even $1,000 each month, your portfolio would have grown even more significantly over the years.
The takeaway here is that if you want to build the sort of wealth you’ll need in retirement, you can’t just invest once. You need to add to your investments steadily and continually over time, especially in difficult or uncertain markets. It wasn’t always easy to add money to an investment in FUNDX over the years, but those who stayed disciplined had a much better chance at creating a secure and comfortable life in retirement.
The chart illustrates the performance of a hypothetical $100,000 investment made in FUNDX in December 31, 2001 with an additional $500 a month added to this investment through September 30, 2016. The chart assumes reinvestment of dividends and capital gains. This chart does not imply future performance. As of September 30, 2016, FUNDX returned 8.05% for the trailing one year; 12.26% annually for the five years; 4.67% annually for 10 years; and 6.86% annually since its November 1, 2001 inception. The gross expense ratio for FundX Upgrader Fund is 1.84 and includes management fee, operating costs and acquired fund fees. Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained here.
Publication Date: Upgrader Quarterly: Autumn 2016