The Ignorant Investor
Ignorance Can't Stand in the Way of My OpinionMonday, August 08, 2005
When It's Time Not to Bother
Here are seven ways to get started as an investor, even if all you can spare is $20 or $50 a month.
So begins this week's column by the usually solid Jonathan Clements of the Wall Street Journal. He goes on to give the reader several options for investing these tiny sums, for the most part in low-cost no-load mutual funds.
I don't mean to be a snob, but what's the point? Twenty bucks a month is $240 a year. With a real rate of return of 6-7% or so per year (in effect, the annual nominal rate of return minus the annual rate of inflation), a historically generous estimate, what you're going to have in 30 years or so is enough cash to . . . well, not buy much.
Point is, the stock market is not some magic machine that takes little acorns and builds them into huge oaks. If you put just a little money in, chances are you're going to come out with just a little more money on the other end, even with the magic of compound interest.
The whole "at least put a little into the market" has the smell of mutual fund community hype to me. A way for the industry to capture revenue by aggregating lots of small accounts that don't have much utility to investors.
So begins this week's column by the usually solid Jonathan Clements of the Wall Street Journal. He goes on to give the reader several options for investing these tiny sums, for the most part in low-cost no-load mutual funds.
I don't mean to be a snob, but what's the point? Twenty bucks a month is $240 a year. With a real rate of return of 6-7% or so per year (in effect, the annual nominal rate of return minus the annual rate of inflation), a historically generous estimate, what you're going to have in 30 years or so is enough cash to . . . well, not buy much.
Point is, the stock market is not some magic machine that takes little acorns and builds them into huge oaks. If you put just a little money in, chances are you're going to come out with just a little more money on the other end, even with the magic of compound interest.
The whole "at least put a little into the market" has the smell of mutual fund community hype to me. A way for the industry to capture revenue by aggregating lots of small accounts that don't have much utility to investors.
posted by Worker 17 # 11:50 AM 
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Just ran into your blog through Battlepanda. Although I would agree that there's some hype to it, I would argue that if one can begin regular savings/investing at all, that there's much more of a chance of increasing the amount over time. If you don't start, it never happens.
# posted by 
: 2:09 PM
: 2:09 PM
That's true, and I'm a big believer in taking a set percentage of cash out of every paycheck and investing it. What I was thinking of was people who see those ads and news stories and think that investing doesn't require any particular sacrifice. It does, though. I'd say that a person has to make a decision: am I going to invest enough now to make a difference in the future, or am I going to consume the cash now?
Thanks for the comment, too. I assumed that I was by myself here.
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Thanks for the comment, too. I assumed that I was by myself here.
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