A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

“The Reason Why This Strategy Works Is Precisely Because It Is Mindless”

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I recently wrote a Guest Blog Entry for the Digerati blog entitled Save Your Money By Paying Yourself Last.

Juicy Excerpt: Paying Yourself First is mindless saving. But I don’t mean that as a dig. The reason why this strategy works is precisely because it is mindless. The idea is to save a specified percentage of your income (usually 10 percent) automatically, without thinking about it. For Pay Yourself First savers, saving becomes the default money management option. And it really does work for millions. But I see a downside. 

Several of the comments express skepticism.

Juicy Excerpt: I would have to say that the Pay Yourself First concept is the easiest and most reasonable way to save.

Comments

  2. Thanks for providing the link, JCL.

    Bogle started a revolution in middle-class investing with his promoting of the indexing concept that started in the late 1970s. We all owe him a big debt for that. Bogle is the godfather of the Rational Investing model.

    When most people hear the phrase “buy-and-hold,” they think “yeah, that sounds good, that’s sticking with your strategy for the long term, that makes sense.”

    Bogle made a huge mistake in his development of the first draft of the buy-and-hold concept. He believed in the Passive Investing concept (Shiller did not publish his research showing that valuations affect long-term returns until the early 1980s). So Bogle thought it was possible to stick with an investing strategy for the long term without engaging in long-term timing. We now know that that’s simply not so, that timing is required for those hoping to have some realistic chance of long-term investing success.

    Valuation-Informed Indexing is a genuine approach to buy-and-hold. It’s sticking with your plan instead of letting your plan be taken wildly off course by changes in market valuations.

    Bogle got us halfway to the promised land. Now those of us who built the Indexing and Retire Early communities need to take it the rest of the way. I believe that we can get Bogle working with us if we all approach this in a constructive and positive way. Bogle will help us get the publicity we need to restart The Indexing Revolution.

    It’s a question of taking the buy-and-hold concept and bringing it into line with what we have learned from the academic research of the past 28 years and thereby making the buy-and-hold concept workable for real people living in the real world.

    Rob

  5. I knew that TIPS offered a far stronger long-term value proposition than stocks in 2000 only because I was planning an early retirement in the mid-1990s and doing that forced me to look at the historical data myself rather than to trust in what the “experts” were telling us all it said. The typical middle-class investor is not in those sorts of circumstances.

    I look forward to the day when honest posting on investing topics is permitted all over the internet and when middle-class investors are able to learn about this stuff themselves. I believe that opening the internet up to honest posting on stock investing will not only help middle-class investors; it will help the “experts” too. I believe that a good number of today’s “experts” would love to be learning more about this stuff and are limited only by their fear of going public with their doubts about the viability of the Passive Investing model.

    Rob

  6. Permitting honest posting on investing topics on the internet will open a lot of doors for a lot of people. It’s a true win/win/win. I don’t see how there could be any possible losers.

    My sincere take re all this.

    Rob