Ferri: Set It And Forget It Really Works

June 15, 2015

New Year’s Day exists for an important reason. It’s the day many investors make a resolution to save more and invest better. But then June rolls around and we find that it hasn’t happened. By summer, there’s less money for savings, and investment skills have not improved.


That’s why a year-round, “set it and forget it” investment strategy using low-cost index funds should be part of your next New Year’s resolve. Automation is the key to a successful savings and investing plan.


By “automation,” I’m saying a strategy needs to happen automatically, before your biased brain has time to get in the way of your best habits. Let me explain by describing the arc of my own investment habits. Putting money aside wasn’t a top priority for me when I finished college and entered the military. When we did accumulate a little, I often blew it on bad investments.


Two years later, I got married, and we started a family soon thereafter. That’s when saving money moved up on my priority list. It wasn’t easy saving money while raising a family on military pay. But then I remembered a secret from an old book I had read in college: The Richest Man in Babylon by George S. Clason.


Pay Yourself First

What makes this timeless classic so special? The book holds the secret to successful saving and investing. I’ve already written an article about it called The Five Laws of Gold, so I won’t spoil it for you by giving it all away here. I will say this book turned my financial life around. Among Clawson’s greatest insights is to always “pay yourself first” by setting aside a measure of savings before you spend it on anything else; that way, you’ll never miss it.


Based on this excellent advice, I opened an account with a reputable no-load mutual fund company and created an automatic monthly draw from our checking account each payday. The fund company deducted $25 from our bank account twice per month and automatically invested it in its large-cap US stock mutual fund. Paying ourselves first solved the problem of not having money to put aside by the end of the month.


The second thing we did was not open statements from the fund company for about three years. I didn’t want to know what the monthly balance was, because my emotions and bad judgment had hurt us in the past and I wasn’t going let it happen this time. As I gained rank and earned more money, our $50 per month contribution grew to $100, and then $200.


Our plan worked. Automated savings and investing gave us more money than my wife and I had ever seen in our lifetimes. When I left the military and earned decent civilian pay, we increased our savings to $500 per month, and then $1,000 per month.



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