Growing our money is important, but we invest to achieve something more impactful in the future – a good education for our children, a worry-free retirement, or maybe a donation to a charity you love.
The best way to achieve this is through a clearly defined plan involving these important questions.
- What is the goal you want to achieve?
- When do you want to achieve it?
- How much do you need to have at that time?
- And what level of risk are you willing to accept?
After answering these questions, you can start looking at what investments make the most sense.
After you’ve chosen your investments, ask yourself these two questions before you invest:
- Why am I investing in the first place?
- What will this money allow me to do in the future?
Answering these questions will give you clarity about how to choose an investment strategy that supports your goals.
What’s the point? Your roadmap is your foundation and your guide. Investing is simply a tool to help you achieve your most important milestones.
Participate in markets, but don’t try to beat them
Successful investing is about letting markets – US and international stocks and bonds – work for you. To do this, invest broadly and avoid trying to pick the winners. Investing broadly means choosing a wider variety of places to invest your money – often referred to as “diversifying.” This will allow you to participate in the growth of stocks and bonds over the long haul and avoid the risks that come with investing in just one company.
Why is this the right strategy? First, let’s look at how the so-called “experts” fared in 2024.
92% of US professional money managers (i.e., those that charge a lot of money to try and pick “the winners” of stocks and bonds) failed to achieve returns that were greater than the index they were trying to beat.
If professional money managers can’t beat an index, is it worth paying them 1% to 2% in fees? We don’t think so. Trying to pick the best-performing single stocks is not a winning strategy.
What’s the point? The world economy is a very powerful thing, and you get to participate in it through global markets. Investing broadly, instead of cherry-picking, will best position you to let markets work for you over time.
Controlling your costs will improve your outcomes’’
It’s not just about how much you make; it’s how much you keep. And your costs, like the fees you pay when investing, can really affect what’s yours in the future.
Investment fees are a lot like erosion. You don’t notice it day-to-day, but over time, you start to see the effects. Fees, even as little as 0.50% or 1%, might seem small but imagine the impact they can have over 10, 20, or more years.
Example:
Let’s look at a $500,000 portfolio.
If you invest that money with a total cost of 1%, your first-year fees will be around $5,000. Now think about that over 10 years. Assume the market rises by 8% per year. That would come to approximately $83,000 in fees. Over 20 years? Over $250,000.
Now let’s say you invest your $500,000 in a low-cost investment with a fee of only 0.10%. Assuming the same market return of 8%, you’ only be paying about $8,000 over 10 years and about $25,000 over 20 years.
What’s the point?
Higher fees add up to real money - your money (or at least it was your money). Lower fees keep more of your money working for you, as it should be. Keep your costs low and watch your wealth grow.
Investing is a long-term strategy, so take a long-term view
It’s time in the market, not the timing of the market, that leads to the investment outcomes you are looking to achieve.
Just like trying to pick “the winners,” trying to time the market – moving in and out to avoid downturns and catching upswings – will lead to less favorable outcomes.
Example:
Let’s look at a hypothetical example in which you invested $10,000 in an S&P 500 Index fund on January 1st of 1980.
If you left that money invested through December 2024, you would have almost $1.7 million.
If you tried to time the market and missed 5 of the best days (only 5 days!) for the S&P 500, you would only have $1,080,917.*
We cannot time markets accurately and consistently to our advantage. Instead of trying to time the market, give your investments time to grow. You’ll find that your investments go up, and then down, and then up, but we have historically been rewarded quite well for remaining invested.
What’s the point?
Start early, invest consistently, increase gradually (when you can), stay invested, and let time do its thing.
Avoid being "human," and focus on what you can control
Remember when we talked about psychology at the beginning? Here's why that matters.
Humans are emotional and tend to act irrationally when it comes to money. Sprinkle in a 24/7 news cycle, a dash of FOMO, and a hint of YOLO, and you have a pretty bad recipe for investing.
So what can you do?
Remain disciplined and stay the course. The easiest way for you to do this is to focus on what you can control and ignore the things you cannot.
*Based on a 2025 Facet analysis that reviewed the S&P return indexes from 01/09/1980 to 12/31/2024.
