Invest like Buddha
Updated: Jun 13, 2018
Have you decided to wait until you earn more money to start investing? Or perhaps you’ll start once you pay off your credit card. I’ll be totally honest with you here, from my experience as a financial coach, if you have an excuse as to why you’re not investing now you’ll likely have another excuse next year. Here I am to give you a shove and remind you to start now.
Being consistent over time is more important than contributing a future lump sum or trying to time the market.
Let’s say you earn $80,000 plus super. You contribute 30% of your gross taxable income each month into a diversified portfolio from age 25 at age 45. At age 45 your portfolio will be worth....
Importantly you don’t need to be earning 6 figures to become a millionaire.
In fact, in my experience those who earn more, waste more and the benefit of a high wage gets lost in leakages- did someone say Uber eats.
Now you're 45 and you're over your job. You decide to go for a career change or start your own business. You earn less but you love what you do. You don’t have the surplus to contribute to your portfolio anymore so you leave the $1,049,931 invested for another 15 years.
15 years has passed and you're ready to quieten things down live by the beach and surf every day. You login to your portfolio and your balance is $2,848,947. That's over $1.8million more than what you had 15 years ago, and you contributed nothing!! Yep hello compounding interest!
The data paints a very clear picture. Unless you are an extraordinary investor, time in the market is going to be a more fruitful approach than timing the market. The last two decades, there's been about an 8.2 percent compounded annual return for the S&P500 but if you missed the 10 best trading days in that 20-year period, your returns drop to 4.5 percent, according to an analysis by the Schwab Centre for Financial Research.
And what about when the market crashes? Won’t I lose all my money? I hear you say.
If you sell, sure you will lose money, but that would be dumb. Why would you sell when the market is down? Think about it. If anything you should buy more when the market is low. Like Buffet says “be fearful when others are greedy and be greedy when others are fearful” or as I like to say be like Buddha, contribute each month & let the fluctuations wash over.
*Figures based on a monthly contribution of $2,000 compounded at 7% pa