Even Lousy Investing Beats Not Investing

By Chuck Saletta September 18, 2012

It wasn't that long ago that we suffered through a period of time in the stockmarket that has come to be known as "The Lost Decade." The 10-year period between the start of January 2000 and the end of December 2009 was one of the worst for stock market performance, ever.

Yet even during those dark times, one very straightforward strategy would have allowed you to just about break even -- or perhaps even make a few bucks along the way. All you would have had to do is dollar-cost average into the low-cost market-tracking SPDR S&P 500 (NYSE: SPY  ) ETF and reinvest the dividends you received. That's one of the simplest ways to invest, and that strategy -- or one essentially equivalent to it -- is very often available in 401(k)s and other retirement accounts.

Although those returns were lousy, both in absolute terms and when compared to the market's long-run average, there's one strategy that it certainly beat: not investing at all.

The act that matters most
When all is said and done, doing what it takes to invest in the first place matters at least as much as the actual returns you get on your invested cash. There are several reasons for this. Perhaps the most obvious is that if you never put any money away at all, no rate of compounding will get that goose egg to ever be anything but a goose egg.

But on another, more subtle level, the act of investing itself matters because making the commitment to do it well requires the rest of your financial house to be in order. You need to be in control of your debts and have enough cash coming in not only to pay your bills, but also to put some away for your future. In essence, investing takes discipline -- the exact same type of discipline that will help you manage whatever sized nest egg you do manage to amass over your investing career.

Your potential $1 million payout from "lousy" investing

A typical working career may last in the neighborhood of 45 years. Having and keeping a consistent investing plan throughout that journey may seem like a daunting task, especially if we suffer through many more of those "Lost Decades." Still, as the table below shows, the reward at the end of the 45-year process may well be over $1 million, even while earning consistently lousy 2% annualized returns:

Monthly Investment	-1% Annual Returns	0% Annual Returns	1% Annual Returns	2% Annual Returns
$0	$0	$0	$0	$0
$100	$43,499	$54,000	$68,162	$87,466
$200	$86,998	$108,000	$136,324	$174,931
$300	$130,497	$162,000	$204,487	$262,397
$400	$173,996	$216,000	$272,649	$349,863
$500	$217,495	$270,000	$340,811	$437,328
$750	$326,242	$405,000	$511,216	$655,993
$1,000	$434,990	$540,000	$681,622	$874,657
$1,250	$543,737	$675,000	$852,027	$1,093,321
$1,416	$615,945	$764,640	$965,177	$1,238,514

Source: Author's calculations.

Granted, to reach the bottom line of that table, you'd have to contribute the maximum allowable $17,000 to your 401(k) throughout your career. Still, the $1 million nest egg at the end is an incredibly impressive result for only managing 2% annualized returns. No matter how challenging it may seem to sock away more than $1,400 a month, note what happens on that top line. If you don't invest at all, when it comes time to retire, you won't have anynest egg to tide you through your not-so-golden years.

The joys of lousy investing

Once you realize how important making the commitment to invest is, getting past the fear of investing poorly is much easier. You can much more objectively look at every investment you have made as either a place to earn or a place to learn. For instance, I view my investment in industrial and financial titan General Electric (NYSE: GE  ) as one of the best investments I've ever made. It was a good investment because of what I've learned from it, in spite of the lousy returns I've received along the way.

Indeed, the principles I learned from that GE investment -- looking for a strong balance sheet and a well-covered and rising dividend -- have yielded far more successful investments than failures over the years. When coupled with the third key lesson from that investment -- prudent diversification -- the experience formed the foundation of an investing strategy that looks capable of withstanding the test of time. Not bad for an investment with objectively lousy returns.

Often, investing does work out
Of course, not all investments turn out poorly, and in fact some wind up doing quite well. Over the course of an entire career, the combination of lousy and great investments in the context of an overall solid strategy could very likely exceed that 2% annual return level. But if you're planning for lousy returns and wind up with better ones, you'll end at a much better place. Yet no matter what your ultimate returns, it's having the foundation and the dedication to invest that matters most.

http://www.fool.com/investing/general/2012/09/18/even-lousy-investing-beats-not-investing.aspx

Parents Can Help Ease the Burden

By Mara Lee
Special to The Washington Post
Saturday, July 19, 2008; Page F02

There are things parents can do to make it easier for their children to handle their affairs after they die or if they should become unable to manage them.

Most important:

Tell them where everything is.

• Where's your will?
• Where do you have bank accounts, stock holdings or safety deposit boxes?
• Where are those statements?
• Where are your tax records?
• Your utility bills?

Elinor Ginzler, a co-author of "Caring for Your Parents: The Complete Family Guide," said children should bring these things up, as uncomfortable as it is.

"Don't wait until bitter crisis," she said. She recommends that children broach the subject by saying, "I want you always to be in control."

It's not comfortable to talk about funerals and burials, she acknowledged, but if parents tell their children how they want them to handle things, they can be assured that they'll do what they want.

Ginzler said parents should give a child power of attorney in case they have medical problems that prevent them from making their own decisions.


Carylin Waterval, whose mother died rather suddenly in September, established power of attorney while her mother was in the hospital. It was helpful, she said.

Ginzler said that if a parent has become incapacitated before getting this set up, it's arduous to get it done. "Just being her daughter doesn't give you that authority," she said.

Mary Ann Brewer is co-owner of Busy Buddies, a company in Northern Virginia that helps elderly people with downsizing moves, as well as helping people whose parent has died.

She said parents want to treat all their children equally and so sometimes they'll make them all executors of their will.

"At some point in time, all those children may not be getting along," Brewer said. "Pick one executor."

Cyndy Esty, one of six children, traveled from her home in Chevy Chase to Boston to take care of her father's estate after he died of cancer nine years ago at age 79. She and one sister were co-executors. "It's amazing how much bickering can come up over the littlest thing," she remembered, even a candy jar.

After 14 years in the business, Brewer and her partner, Nancy Loyd, have seen a lot of parents seek to minimize conflict over their things, either for a downsizing or planning for after they die.

Some are simple, such as putting the name of the intended recipient on the back of a piece of furniture or the bottom of an heirloom. Or letting the children draw straws about asking for certain pieces.

Others are more involved. In one case, parents gave each child a chance to pick something they wanted, starting from youngest to oldest, then changing the order in each successive round.

Another couple gave each child $500 in play money and set starting bids for belongings. The children had to outbid each other if more than one wanted the same thing.

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/18/AR2008071801433.html

Facing My Financial Fears: Estate Planning

Facing My Financial Fears: Estate Planning
November 22, 2006 @ 12:11 pm - Written by Trent

This week, The Simple Dollar is doing a five part series on financial topics that scare me just a bit. Researching and then writing about them will (hopefully) alleviate some of that fear
Other fears include buying a car and Roth IRAs.

Until recently, I’ve not thought about the need to plan for my passing in any real form. With what little I knew, I was pleased with intestacy for determining my assets, which basically meant that my wife gets everything, or in the event of simultaneous passing, my son gets everything, or in the case of a family disaster… well, I really didn’t care - the intestate law in my state was perfectly fine by me.

The first step I made in the direction of estate planning is that I simply drew up a list of specific items that I wanted specific friends and family to have upon my passing. Again, this is no real problem; I trust my wife to distribute these items.

But then I began to wonder what would happen if we both passed, and a whole nightmarish can of worms opened for me.

At first, I was just fine with intestacy, meaning that all of the cash would simply become the property of our son, but then I tried to imagine what would happen if our infant son was left with our full insurance amounts and in the hands of his guardians (the only aspect of our will is the definition of guardians for our son; we make no mention of any assets so intestacy will apply and probate can be avoided) and, as much as I trust them, I wondered what potentially might happen with that money.

I realized that I needed to set up a living trust so that my desires for my assets are clearly followed in the event of my death, but I’ve avoided the process because of the apparent complexities of such an instrument. Successor? Grantor? Trustee? Signing my assets over to the trust? It all made little sense to me and the documentation I’ve found in extensive internet searching isn’t entirely clear, either.

Every time I look at my son, though, it gnaws at me a little more. I’m failing him because of my own ignorance and avoidance of a situation I don’t understand, I keep telling myself. I know that the process is relatively simple and I know that I need to do it, but there’s one thing holding me back.

Fear.

Writing this has made me step up to the plate. I have set up a brief meeting with our family’s attorney, who will answer my questions for me for a very agreeable fee. I hope to enter the process of setting up a living trust as soon as my questions are answered.

http://www.thesimpledollar.com/2006/11/22/facing-my-financial-fears-estate-planning/