The Golden Rule of Investing is simply, “Save as much as you can as early as you can.” The operative word is early. William J. Bernstein lays it out in stark language in his book, “The Investor’s Manifesto“ where he writes, “Each dollar you do not save at 25 will mean two inflation-adjusted dollars that you will need to save if you start at age 35, four if you begin at 45, and eight if you start at 55. In practice, if you lack substantial savings at 45, you are in serious trouble. Since a 25-year-old should be saving at least 10 percent of his or her salary, this means that a 45-year-old will need to save nearly half of his or her salary. Most 45-year-olds will find this nearly impossible, if for no other reason than the necessity of paying living expenses, payroll taxes, and income taxes.”
Malkiel and Ellis devote the first chapter of their little book, “The Elements of Investing” to the subject of saving. M & E point out that one of the first steps in saving is to stop dissaving. This means one needs to begin to live below their income. Save instead of spend.
Stop burning up your retirement and kick the tobacco habit is one step. Whether it is smoking or chewing, both are harmful to your body health and financial health. Kick the habit of drinking bottled water. Why pay for water that is drawn out of the tap or from wells and sold in plastic bottles. Save the environment and build up your saving. Never, never, never incur credit card debt. This is the worst kind of debt and it will choke your financial health until you clean up the mess. These are some of the first steps in applying The Golden Rule of Investing. It is difficult to help anyone build and monitor a portfolio if they do not have the discipline to save.
Photograph: Northern Norway