Is being consistent better than being smart?

by Don Kuehn

I write a lot about saving and investing those savings to fund retirement. But, after 27 years working with AFT members around the nation, I know that many readers are struggling to make ends meet, let alone stoke a healthy retirement account.

I try to stress the wisdom--the necessity--of getting started right now if you are going to be in a position to enjoy the years after you stop working. Whether your strategy is to "pay yourself first" or to set aside your next salary increment or to save a few dollars from each paycheck, at retirement the dollars you save today will be worth more than the ones you save next year.

If you observed the investment world in the past year and a half, you know that the bubble that many predicted would burst, did. Stock prices, especially in technology and the so-called dot.com sectors collapsed and dragged the entire market down with them. This is oversimplification, of course, but the connection of technology to every facet of our lives resulted in a serious downturn in the price of many stocks.

The market sell-off, and the actions taken by the Federal Reserve to lower interest rates, dominated the news and probably reinforced the fears many people have about the risk of the stock markets.

So, have you got what it takes to ignore the roller-coaster trends of the financial markets and get started building for your future? Would it help if you knew that most experts agree the worst is behind us? Here are a few simple guidelines to follow whether you are a new investor or a seasoned expert.

• The more you try to read up on investing and keep pace of what is happening in the financial world, the more you will encounter expert advice. Whether you are using Web sites, magazine articles, online chats or some other source for advice, take my advice--don't follow advice! It's your money.

• If you think there are investments out there that will give you more than bank interest with little or no risk--fuhgedaboudit! There are places to park your dough that will give you risk-free returns of 3 percent to 4.5 percent, but not much more. When you factor in inflation, you aren't making any real progress toward your goals.

• Wherever you invest, someone on the other end of the transaction is trying to make a living. There are costs associated with every aspect of building wealth. Learn them. Know the difference between loads and fees. While annual performance is unpredictable, annual fees are guaranteed. It's fairly easy to find good mutual funds with fees below the industry average (of about 1.5 percent). The Vanguard Group is known for its low fees structure, so start looking there.
• Be a disciplined saver. Make it a habit to invest a set amount every payday. It doesn't have to be a lot--even $25 is a start. But the key is to ignore the gyrations of the market and invest every time, without fail. It's called dollar cost averaging and the experts can prove to you that being disciplined pays off in the long run. Being consistent is better than being smart. Even mediocre choices will do well over a long time frame.
• Unless you are a very experienced investor, don't chase performance. If you do, put only a small portion of your assets on the line looking for the hottest sector of the market. Keep the bulk of your money in core investments that you can stick with for five or more years "come hell or high water."

Maybe you have looked into some mutual funds and found that their minimum investment is $2,500 or more and you dropped the idea of investing altogether because you've never had that much money in one place in your life.

Well, there are many fund families that will let you start with a lot less if you are willing to commit to a regular, automatic investment plan. And that's what you need to do anyway.

For $25 and a commitment to add to your account on a regular basis you can invest with TIAA-CREF. No other fund family will let you in this cheap, and the funds are pretty good, too.

Got $50 bucks? There are many more options available with the same kind of regular investments taken directly from your checking account. T. Rowe Price and American Century are among the fund groups that will set you up at this level, and their funds are among the industry leaders.

With an initial investment of $100, you can get into SAFECO Growth or Babson Value--two pretty fair funds with savvy managers who have been around for a long time.

Make no mistake about it, I am not recommending any of these funds. Even if I was, you shouldn't take my advice anyway (see bullet one, above). I am trying to make the point that there is no excuse for any potential investor to get discouraged by the high minimum investments advertised by many mutual fund companies. There are alternatives out there to put the prospect of a secure retirement within reach of every person.

Don't be discouraged if your efforts to start a saving and investment program have been put on hold while family or school needs took precedence. The key to funding retirement or any other goal is to get started with a consistent commitment to put money aside and make it grow at inflation-beating rates. Over time, this is a race won by the tortoise, not the hare.