Every year, I look forward to newspapers’ “what’s in/what’s out” lists.
High up on the financial “what’s out” list in 2009 is “leverage”—borrowing money to make a bigger bet, whether on housing, commodities, currencies, collateralized debt obligations, or corporate buyouts.
And the “what’s in” list has to have a home for thrift. The notion of saving for a rainy day tends to come back in fashion whenever we’ve been through the kind of economic downpour that has hit investors in 2008.
After a drop of 40% in the stock market, even disciplined savers and investors may have to ratchet up savings to restore our portfolios. Among those who had been saving only a bit—and national statistics indicate that’s a very large percentage of households—the need for a return to thrift is even greater.
I thought it might be helpful to ask the experts—successful Vanguard investors—for advice on thrift. For these investors, thrift has never gone out of style. They’ve amassed sizable nest eggs by living beneath their means and steadily saving a good slice of their incomes, month after month, in diversified portfolios. They didn’t “lever up” by putting everything in stock funds, or by using home-equity loans to dabble in the market. They don’t carry balances—at least big ones—on their credit cards.
So, Vanguard experts, how about sharing techniques that you’ve found helped you to save? Not the names of good fund or stock picks, but the methods you’ve relied upon to salt away funds for that rainy day.
I’m not naturally disciplined, so like many other people, I rely on the “artificial discipline” of having money (in addition to my 401(k) contribution) automatically taken from my pay before I have a chance to spend it. To prevent myself from “raiding” these long-term accounts, I put them in a sort of mental Fort Knox—and simply pretend that I can’t have that money until I retire. Yeah, I could take it out, but I imagine all sorts of alarm bells going off if I did. Goofy, yes. But it works for me.
What works for you?
(I’ll discuss a few of your best savings tips in an upcoming post.)
Investments are subject to risk.
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