As a follow up to The Golden Rule of Investing, I am bringing this post forward so new readers of ITA Wealth Management will not miss it. This post drives home the importance of investing frequently and early.
As a small boy, my family subscribed to a magazine called “Children’s Activities.” Each issue contained a story of two characters, Goofus and Gallant. We all wanted to be like Gallant, although we frequently found ourselves behaving like Goofus.
Here is another Goofus/Gallant tale, this time with help from a publication written by the late Louis Rukeyser. I will paraphrase his article, but I want to give Rukeyser proper credit for the information. “Back in 1963, Goofus, the single un-luckiest investor in the entire world, invested $2,000 once a year into the stocks that comprise the Standard & Poor’s 500 index. But his timing was so terrible that he chose the worst day of the year every time! Incredibly, he invested at the exact top of the market every year — and he kept this up for 10 years. After ten years, he simply left his portfolio ride.” As of January 1, 2000, Goofus’ $20,000 investment grew to $972,262. And now we are introduced to Gallant, an astute investor. “Gallant started investing $2,000 a year in 1973, right after Goofus quit. To everyone’s astonishment, especially Goofus, Gallant turned out to be the world’s luckiest investor. Every year, he picked the absolute bottom of the market to plunk down his $2,000. And to stack the odds in Gallant’s favor, he kept up this stupendous performance for 20 years, investing twice as much and twice as long as Goofus.” And here, I am using Rukeyser’s figures. “As of January 1, 2000, Gallant’s $40,000 was worth $30,064 less than Goofus’ stake — $942,198 vs. $972,262. Imagine! Gallant put in twice the money, and his annual return was far higher, yet Goofus licked him fair and square.” This is the only time I can recall where Goofus turned the tables on Gallant, and he did so by making one important move. That was to start his saving plan earlier than Gallant. This is an argument against market timing, dollar cost averaging, or any other system designed for picking market entry points. This story is telling investors to follow “The Golden Rule of Investing” or invest as much as you can as early as you can.