Four years ago, I was waffling endlessly about whether it was too risky to invest the funds I’d contributed to my Roth IRA retirement account instead of letting them sit idle. But then, two short sentences in the book “Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned In School” finally convinced me the answer was yes.
The text, written by Andrew Hallam, contains tons of facts, figures, and explanations that illuminated everything from index funds to compound interest for me. But it was two simple lines in Chapter 2 that lit a fire under my butt then, and continue to inform my investment strategy even now.
“Over the past 90 years,” Hallam wrote, “the US stock market has generated returns exceeding 9% annually. This includes the crashes of 1929, 1973-1974, 1987, and 2008-2009.”
It might not seem like much, but this information reverberated in my brain like a bomb going off. I’d been so zoomed in on the steep climbs and precipitous drops of the market that I’d failed to notice its steady upward trend and what it had to offer young investors like me.
It was time to zoom out.
‘Millionaire Teacher’ challenged my preconceived notions about the market
Before I read “Millionaire Teacher,” my understanding of the stock market was vague and amorphous. I viewed it as a map that only a rarefied group of people could read, and I wasn’t one of those people. Unequipped with a map, I was sure to choose a “bad” stock; one that would lead first to a loss of money, and then to a loss of dignity, in quick succession.
I didn’t want to look stupid by picking the wrong stocks, so I instead picked no stocks at all, comforted by the knowledge that I couldn’t lose money I hadn’t invested.
But once I read Chapter 2, the realization hit me like a ton of bricks: I not only could lose money but actively was losing it. I was leaving it on the table. For every day that my money remained out of the market, I was missing out on a rate of return that I couldn’t find anywhere else — and that had to change.
The puzzle piece I’d been missing: compound interest
What Hallam explained was that due to the magic of compound interest, the secret wasn’t timing the market, or putting a massive amount of money into savings each month. Instead, it was starting early. Just like rolling a snowball down the hill, the higher you go up the slope, the more time the ball has to accumulate.
To illustrate his teachings, Hallam included a theoretical question. He asked readers if they’d rather invest $32,400 and turn it into $1,050,180, or invest $240,000 and turn it into $813,128?
The former is clearly the preferred option, but seeing it spelled out that way gave me my own particular sensation of relief. As a freelance writer with a fairly low income, I couldn’t imagine ever being able to save up $240,000, but an investment of $32,400 felt much more within reach.
In fact, with my habit of maxing out my Roth IRA every year, I was scheduled to hit that threshold by 2021, with decades of wage-earning years still ahead of me. From there, the way that money grew was up to me.
I left my mistakes in the past and invested my money
Like anyone without a time machine, the earliest I could start investing was that very day. This put me quite a bit behind Hallam, who began building his nest egg at age 19, but I was determined to stop sabotaging myself with these kinds of thoughts. The time to invest was now, never mind the mistakes I’d made yesterday.
I moved the funds in my Roth at Vanguard from the holding account to a brokerage account, and purchased shares in three funds: an international stock index fund (VTIAX), a US-based stock index fund (VTSAX), and a bond index fund (VBTLX).
Then I turned to my savings goals
Eager to try to make up the time I’d lost, I looked for even more opportunities to save.
I already had a savings plan in place to make sure I could max out my contribution no matter how low my income dipped, and at the time, there wasn’t much more wiggle room in my budget.
But as my income increased over the years, I boosted the automatic monthly transfers into my savings account as well, taking Hallam’s advice to pay myself first instead of just saving what’s left over at the end of the month.
Four years after I first read his book, I’ve recently doubled my monthly savings from $630 to $1,260. And as the rates on high-yield savings accounts drop, I’ve been investing as much of it as I can, cheering on my little snowball as it tumbles relentlessly down the hill toward my eventual retirement.
