How to be Successful in Investing from Kiplinger — Part I

Kiplinger's Personal Finance has an on-going special series on successful investing. Today, the first segment of the "The Five Keys to Investing Success" is out and key number one is Make Investing a Habit, a principle that I couldn't agree more.

The article begins with a suggestion to people with small amount to invest every month:

For most people with a small amount to start with, the best chance to acquire measurable wealth lies in developing the habit of adding to your investments regularly and putting the money where it can do the most for you.

When we started to invest in 2001, we had only a couple of mutual funds from Vanguard and in addition to the initial investment of $3000 required to open an account, we put $100 each month into the funds we owned by setting up the automatic investment plan. The benefit of participating in the automatic plan is that it can lower or even eliminate the initial amount. For example, T. R. Price requires no minimum initial investment if you argree to add $50 or more every month when openning an account. As for us, among the 12 mutual funds (OAKBX, PRSVX, CSVFX, BUFSX, DODGX, TGLDX, CGMFX, DODFX, TAREX, PRNEX, TREMX, and ADVDX) currently in our taxable accounts, 9 of them are automatically invested for $50 or $100 every month. Our investment schedule may not make us rich, but over time, the magic of compounding will work for us as long as we focus on our long-term goal: a comfortable retirement.

To show how small amount can add up in the long run, the article gives this example:

Since 1926, the stocks of large companies have produced an average annual return of more than 10%. (Remember, that includes such lows as the Great Depression, Black Monday in 1987 and the stock slide that followed September 11.) At 10%, with $5,000 to start, you’ll reach your $250,000 goal if you contribute $279 a month to your investment account. With an 11% return, $235 a month will get you your quarter-million in 20 years. Less-risky plans can also work wonders. Starting from zero, putting just $50 a month into an investment that pays a compounded average annual total return of 11% for 20 years will get you a nest egg of almost $43,700. Stick to the plan for 30 years and you’ll have more than $141,500. 

Click here to read the full article from Kiplinger.

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