The Simplicity of Accumulation

Regarding (yet again) how an animation employee -- or most anybody else -- should save:

Take 10% of whatever you make and tuck it into savings/investments. Pay yourself first. Pretend that slice of the paycheck isn't there and live on what's left.

And here's what you should put the money into (and I think the investment reporter writing this is dead on) ...

... Mutual funds reporters lead a secret investing life. By day we write 'Six Funds to Buy NOW!' We seem to delight in dangerous sectors like technology. We appear fascinated with one-week returns. By night, however, we invest in sensible index funds. ....

After months of interviewing managers and studying statistics and strategies, I made only one move in my own retirement portfolio--into my fund family's more diversified index fund. The fund reporters I knew came secretly to favor low-cost index funds. ...

Unfortunately, rational, pro-index-fund stories don't sell magazines, cause hits on Websites, or boost Nielsen ratings. ...

The above was published in 1999, at the peak of the tech fund craze, a time when Animation Guild members were stopping me on the street to exult in their huge runups in the TAG 401(k) Plan's tech stock index fund. (What can I say? It was a simpler, more optimistic time. Of late, nobody has bragged about the huge profits they're making. Draw your own conclusions.)

Here's the distilled wisdom: Keep your investing costs as low as possible. Be broadly diversified with both stocks and bonds. Add more bonds to the mix as you get older.

That's it in a nutshell. (And the shell is simple, is it not?) But here are the two rules that are more difficult, and make the points above tougher to execute.

1) Don't chase returns in the latest "hot sector" (even though all your best buds are doing it.)

2) Don't bail out of your allocation of stocks and bonds when it's tanking. (And at some point it will tank.)

I encounter people at 401(k) meetings who tell me they have no interest in investing. I (sort of) understand their position, but let's get realistic here. This is your money we're talking about. And if you haven't got the gumption to read a couple of books on where to put the moolah and take a few hours to educate yourself, you're as foolish as somebody who declares they have zero concern about their health. ("I'm going to go right on drinking six packs of Colt .45 and gnoshing on Big Macs. I like it!")

I'm not advocating becoming some kind of obsessive expert on stock market trends, just arming yourself with rudimentary facts. If you do no more than putting your extra cash in a one-stop target retirement fund or asset allocation fund, you'll be ahead of ninety percent of the population.