Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

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sean.mcgrath
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by sean.mcgrath »

Silverado wrote: Sun Jun 20, 2021 7:10 am
lazybones18 wrote: Sat Jun 19, 2021 11:39 pm what does living below your means really mean ?

is there a % of income i need to save or spend ?
It starts simply as a penny, but a first target of saving 10% when maybe sub 30 years old is a better starting point. You’ll need more percent or bigger income, but start reasonable.
I still challenge the idea that younger people will struggle to save 20% and then suddenly develop the discipline. Especially pre-children, it should be easy for virtually all full-time employed people in their twenties. After food and rent, almost everything is discretionary.
diabelli
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by diabelli »

will this hold true if there is a 30 year period of absent real returns?
Recently I find I'm worrying about this more.
I suppose if you dollar-cost-average i.e. invest regularly, you're still taking advantage of volatility and coming out with some return in the end...
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by Jags4186 »

tvubpwcisla wrote: Sat Jun 19, 2021 9:42 am It seems like building long term wealth is pretty simple. Live below your means and invest in a low cost total stock market index fund. Am I missing anything other than stay the course? Is it really that easy?
You can describe lots of things simply, doesn’t make them easy. How did the Buccaneers beat the Chiefs in Super Bowl 55? Simple. They scored more points. It’s that easy to win, just score more than the other guy.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by yatesd »

I agree with almost everyone’s comments and I’ll add one other important thing.

Contentment. I see many truly wealthy people in this forum who are not enjoying their circumstances. I’d rather be financially independent and content than wealthy and bitter about what I haven’t accomplished.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by Jags4186 »

sean.mcgrath wrote: Sun Jun 20, 2021 7:34 am
Silverado wrote: Sun Jun 20, 2021 7:10 am
lazybones18 wrote: Sat Jun 19, 2021 11:39 pm what does living below your means really mean ?

is there a % of income i need to save or spend ?
It starts simply as a penny, but a first target of saving 10% when maybe sub 30 years old is a better starting point. You’ll need more percent or bigger income, but start reasonable.
I still challenge the idea that younger people will struggle to save 20% and then suddenly develop the discipline. Especially pre-children, it should be easy for virtually all full-time employed people in their twenties. After food and rent, almost everything is discretionary.
Yup. Life just gets more expensive as you get older and when your young, unless you make donkey decisions, you should have far fewer expenses when young than when you’re middle aged. Most average people experience wage growth but wage growth generally doesn’t keep up with expense inflation. So you better save lots when young and take advantage of many decades of investment growth.
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goingup
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by goingup »

Yes

And:
Time- for growth, compounding, appreciation
Patience- because there will be periods of no growth
Luck- that over your investing life you'll have good stock market returns.
:beer
MnD
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by MnD »

It worked for us. We saved around 25% of our income on average from 1986 through 2018.
Our primary retirement investment account had/has expenses of 0.04%.
I don't think we've ever gone under 66% stocks or over 80%.

Had kids, DW took 14 years off from paid work in the middle, I made a lot of suboptimal investment decisions in smaller accounts outside of our primary retirement savings account especially 1986 through late 90's. But no disasters in investing, marriage, health or jobwise. My jobs were stable and paid well so we were not frugal in any real sense of the word. Just pretended our gross income was 75% of what it actually was which provided a comfortable but not extravagant lifestyle. Regardless of income, many people simply can't restrain themselves from spending nearly all or all of it.

Switched gears to spending from portfolio on the first month after retirement per our IPS below and are enjoying a very comfortable financial lifestyle in early retirement. A lot of people struggle with that here and wealth building becomes a "forever" preoccupation.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by RadAudit »

Hope so. If not, DW and the kids are in for a surprise.
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by stocknoob4111 »

it isn't that simple.. you could do everything right and still have bad luck with lost decades, high inflation etc like in 1966. In the long run it really is about which cycle you were dealt and that is pure luck.. 1966 or 1982.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by markjk »

Sandtrap wrote: Sat Jun 19, 2021 9:56 am
tvubpwcisla wrote: Sat Jun 19, 2021 9:42 am It seems like building long term wealth is pretty simple. Live below your means and invest in a low cost total stock market index fund. Am I missing anything other than stay the course? Is it really that easy?
Define “wealth”?

Substantial wealth?
Financial Independence?
Enough?
Rich beyond one’s needs for life?

The “idea” of wealth is simple.
Starting from 30 cents is not.

Read: “Millionaire Next Door”
j🌺
+1

Great book.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by Paddygirl »

It worked for me and I didn't start doing this seriously until my 40s and was able to retire at 58. I was always a little frugal but spent money on quality and not quantity.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by CyclingDuo »

tvubpwcisla wrote: Sat Jun 19, 2021 9:42 amIt seems like building long term wealth is pretty simple. Live below your means and invest in a low cost total stock market index fund. Am I missing anything other than stay the course? Is it really that easy?
Yes, it really is that easy.

It's even easier in today's world thanks to automation. Automatic payroll deductions into your workplace plan. Automatic deductions from your bank account into your IRA and taxable accounts. When we started, we had to fill out a slip of paper that arrived in the mail every month from Vanguard (or other mutual fund company), write out a check, put it in the envelope, lick a stamp and send it to the mutual fund company every month. There was a routine to that, but today's automation is a better boon for the investor. Even the IRS will deposit a tax refund into your investment account of choice. The amount of Robo-Advisor apps that automate even the small dollars these days is another easy boon for the investor these days.

It's difficult for it not to be easy these days...

32 years in at age 59 with a few more years to go. Couldn't start investing before age 27 because I had to pay off my double digit interest rate student loans first. One simply has to have faith in the system that the decades of staying the course will give whatever the market returns.

CyclingDuo
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by NiceUnparticularMan »

lazybones18 wrote: Sat Jun 19, 2021 11:39 pm what does living below your means really mean ?

is there a % of income i need to save or spend ?
Assuming the same investment plan, the more you save and invest, the more you end up with.

But spending in the short term on some things, like say your own career through education or sometimes a move or so on, might actually increase your long term income and savings.

And even too much deferral of spending on things that have no financial benefit but would have personal, family, community, or societal benefit could be adverse in the end. Because you only have so much time and opportunities to do such things, and you don't know how much time you have.

So when is saving enough? That depends on your goals, and then how well your investment plan goes, and how close your life is to what you were expecting. And you can define your goals and your expectations, but knowing how your investment plan will go? How your life will actually go? That's really hard.

So my answer to your question is we are all just guessing with our savings/spending decisions, and hoping it works out reasonably well. And some guesses might be better than others, but there is a lot of irreducible uncertainty, and that is part of why luck will very much play a large role in the ultimate outcome.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by Jimsad »

I general I agree with the original poster but IMO it is very important for the asset allocation to get more conservative closer to retirement to avoid a major market crash right before retirement wiping away multiple years of Gains
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by smitcat »

Jimsad wrote: Sun Jun 20, 2021 10:02 am I general I agree with the original poster but IMO it is very important for the asset allocation to get more conservative closer to retirement to avoid a major market crash right before retirement wiping away multiple years of Gains
The more you have saved the less inportant this is.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by smitcat »

sean.mcgrath wrote: Sun Jun 20, 2021 7:34 am
Silverado wrote: Sun Jun 20, 2021 7:10 am
lazybones18 wrote: Sat Jun 19, 2021 11:39 pm what does living below your means really mean ?

is there a % of income i need to save or spend ?
It starts simply as a penny, but a first target of saving 10% when maybe sub 30 years old is a better starting point. You’ll need more percent or bigger income, but start reasonable.
I still challenge the idea that younger people will struggle to save 20% and then suddenly develop the discipline. Especially pre-children, it should be easy for virtually all full-time employed people in their twenties. After food and rent, almost everything is discretionary.
Not nearly as necessary for those with pensions.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by Elric »

sean.mcgrath wrote: Sun Jun 20, 2021 7:34 am
I still challenge the idea that younger people will struggle to save 20% and then suddenly develop the discipline. Especially pre-children, it should be easy for virtually all full-time employed people in their twenties. After food and rent, almost everything is discretionary.
Unless your full-time pay won't even cover.hoisimg, of course.
"Virtually all" full-time employed cannot save this amount. Many, perhaps even a majority, bit not at all true for a sizable minority. And this remains true into the 30's and older. You won't find them on the Bogleheads forums, investing is not their number 1, 2, or number 3 issue. https://www.businessinsider.com/full-ti ... -us-2020-7
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by AerialWombat »

arcticpineapplecorp. wrote: Sat Jun 19, 2021 8:56 pm
JoMoney wrote: Sat Jun 19, 2021 7:17 pm
HomerJ wrote: Sat Jun 19, 2021 6:54 pm
arcticpineapplecorp. wrote: Sat Jun 19, 2021 6:39 pm I once asked the question, "If you earn $1,000,000.00 a year, but spend $1,000,001.00 a year are you rich or poor?
“Annual income twenty pounds, annual expenditure nineteen nineteen and six , result happiness.
Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”


-Charles Dickens.
If that $1,000,000 a year was "earned" from income you regularly received on $50,000,000 of invested assets, you could probably get away with spending $1,000,001.00 every year for the rest of your life and most would consider you as "rich" even when you passed.
sorry i wasn't more specific. i'm talking about someone who makes a buttload of money at their job but spends more than they make. they've got nada, zilch, zero after they've spent all their income (and then some).
This is spot on. I’ve had clients with 7-figure salaries that were in debt past their neck and going deeper in debt every pay period.

High income is pointless if you piss it away.
For entertainment purposes only.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by Normchad »

stocknoob4111 wrote: Sun Jun 20, 2021 9:28 am it isn't that simple.. you could do everything right and still have bad luck with lost decades, high inflation etc like in 1966. In the long run it really is about which cycle you were dealt and that is pure luck.. 1966 or 1982.
Obviously, nothing is guaranteed.

But I graduated into a crap economy where many grads could not get a job. I had the dot-com bust. I went through the global financial crisis. And I survived a global pandemic. And it still worked out fabulously for me.

There won’t be any 40 periods where things don’t go haywire. Don’t let that be an excuse for not trying.

It is this simple. And I honestly have to say, it’s been easy as well.

Start saving as soon as you get that first job, and it just becomes a habit. A virtuous cycle….

And with all that, I still had a family, sent the kid to school, etc.

We can always find reasons to argue. We can always make up stories why a plan isn’t perfect. If you wait for perfect, you will wait forever.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by Carol88888 »

Nassim Taleb criticizes the "The Millionaire Next Door" by saying that the strategies didn't work for his relatives who lived in Lebanon and bought Tbills. Or investors in Russian who got totally wiped out.

So it really does matter what you are accumulating.

But as a first principle there is no wealth without first acquiring the surplus funds to invest.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by bling »

Normchad wrote: Sun Jun 20, 2021 10:31 am It is this simple. And I honestly have to say, it’s been easy as well.

Start saving as soon as you get that first job, and it just becomes a habit. A virtuous cycle….
it certainly helps if you grew up in a frugal family. my parents lived very modestly. they did not earn very much money. eating out/ordering in was for special occasions only. learning delayed gratification was not an option for me.

these days, i'm fortunate to make a good income, but a lot of those frugal habits still persist. it's insane to me that some people would spend so much money on designer clothing/bags. $1000 for a purse? that's food for a month. instead of buying cars brand new, you can buy used, put in a brand new engine and it'd still be cheaper. instead of buying the biggest house you can afford, buying what you need instead lets you save the difference, which can be a lot.

i guess for me i'd rather see a big number instead of material possessions, so it's been easy for me to prioritize saving over spending. the challenge here of course is not to take it too far. what's the point of living if all you do is save? you'll either be too old to enjoy your savings or you'll be dead.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by ClevrChico »

The first step would be investing in yourself. Then, you have the salary to make index investing work. It's a great method for us normal mortals.

I know several people that started tech companies, built some amazing IP, and were acquired. I'm guessing that brought them to $10M - $100M net worth at middle age. I doubt they put any effort into low cost investing at that point. It's fun seeing what adventures they are up to on social media.
Last edited by ClevrChico on Sun Jun 20, 2021 12:57 pm, edited 1 time in total.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by jaqenhghar »

bling wrote: Sat Jun 19, 2021 7:09 pm
jaqenhghar wrote: Sat Jun 19, 2021 5:53 pm
bling wrote: Sat Jun 19, 2021 5:30 pm overly simplified, for every year you can save half your income is one year you can live in retirement at the same standard of living.
Would you mind explaining this a bit more? Still learning, and I don't quite follow.
you have an income of $100k. you spend $50k and save $50k. whatever your standard of living you achieved with that $50k, you can do the same with the other $50k once you reach retirement.

it's oversimplified because of compound interest and # of years until retirement, so in reality you can save less than half and still maintain the same standard of living.

early in your career, when portfolio is still small, your savings rate trumps everything else you do. you could make some very bad investment decisions and you'll probably still come out OK with a high savings rate. it's not until later in your career after you've been saving diligently for many years that it flips, where your portfolio is large and its swings trumps your income.
Makes sense - thank you for taking the time to explain!
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by sean.mcgrath »

Elric wrote: Sun Jun 20, 2021 10:23 am
sean.mcgrath wrote: Sun Jun 20, 2021 7:34 am
I still challenge the idea that younger people will struggle to save 20% and then suddenly develop the discipline. Especially pre-children, it should be easy for virtually all full-time employed people in their twenties. After food and rent, almost everything is discretionary.
Unless your full-time pay won't even cover.hoisimg, of course.
"Virtually all" full-time employed cannot save this amount. Many, perhaps even a majority, bit not at all true for a sizable minority. And this remains true into the 30's and older. You won't find them on the Bogleheads forums, investing is not their number 1, 2, or number 3 issue. https://www.businessinsider.com/full-ti ... -us-2020-7
Hi Elric,
I'm not sure that source is unbiased.

First of all, let me say that I do not want to trivialize poverty. I have lived in poverty myself and am very, very happy that this is a distant memory. It is incredibly stressful. Perhaps this is why I advocate so forcefully that even low income people can save and get out of the trap. And I stick with my original statement: "Unless you are truly in poverty, everyone can save 20 - 30% of their net income."

These posts have had me thinking about poverty all afternoon, and I actually looked into it a bit on a practical level. My example is for Grand Rapids, Michigan, because I am from there and I know it. I understand that the coasts are more expensive, but I don't know them well enough. I am willing to bet that my example works in most of the rest of the country. I decided to go for a family of three. The poverty level for them is $21k (HHS). I Googled grocery expenses on this site, and went with $400 per month, based on stoptothink, 7eight9 and boglegirl. I did a cross-check on meijers.com pricing my mom's "day before paycheck" meals. They were $6.50 full day for a family of three, which is half the $400. That seems about right.

I looked for apartments, and could find them for $400 per month two bedroom. I checked help wanted for McDonald's cashier: $25k full-time (which is slightly above minimum wage in Michigan), with health, dental, tuition reimbursement and employer match 401k! So, I need to save $2,500 per year to get to my 20%, courtesy McDonald's. I am spending $5k for food, $5k for my apartment, and I have $15k left. This is with only one of the two working, the other at home assuming the kid is not yet in school. I guarantee you I'd manage to save the $2.5k.

Again, per my original post, "low-earning single parents face a brutal financial challenge." I've watched family members deal with this when I was too young to help, and I have no illusions. I am not sure they could manage this. But single no kids or married; most can.

Best,
Sean

p.s. For those who have not been in poverty and think my calculations are a fantasy, two thoughts. First, what is discretionary? Vacation. For all my childhood, vacation meant a sixteen hour drive to NY to sleep on the floor of my great-aunts' house. Flocks of cousins, visiting the city, Coney Island -- we had a great time. I did not have a vacation that involved a hotel until I was married. In fact, I don't think a kid in my neighborhood did. Second, a tall latte at Starbucks costs more than what my mother (inflation adjusted) would spend on average for an adult meal. Skipping discretionary is a big deal.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by IWANTTORETIRENOW »

LittleMaggieMae wrote: Sat Jun 19, 2021 11:08 am
It seems like building long term wealth is pretty simple. Live below your means and invest in a low cost total stock market index fund. Am I missing anything other than stay the course? Is it really that easy?
The missing part is having a personalized goal to reach. The "live below your means" and "invest in a low cost total stock market index fund" is the basic PLAN. It says nothing about the goal.

I could take home 50K per year - and invest 100 per month (live beneath my means - I'm not spending every penny) That would build wealth over 30years but would it be meaningful to me after 30 years?

In other words, if you don't quantify what "wealth" means as you move thru life "saving" - you may not build enough to meet your needs (the reason/goal you set out on the journey to build wealth). On the other side of the coin if you don't quantify what "wealth" means you might live so far below your means that your life isn't as "good" as it should be (and you become one of those stingy, bitter people who have lots of money) OR you keep earning ever bigger amounts so you can save ever bigger amounts (and maybe miss out on "life" while you are doing that) - all in the name of accumulating a too big pile of wealth.

Without a long term goal - how will you know if you are earning enough or investing enough to be meaningful to you?

Saving money for purely for the sake of saving money isn't a goal and often isn't the best course of action.
I agree you should have a goal, but the goal posts move a lot. When I was around 30, I put my information through calculations from retirement books, retirement ads, and such. Retirement professionals did the same. Everyone came up with around $500,000 was what i needed. The next goal from calculators and such was around $1,000,000. Now, they are saying 1.7 million minimum. A girl can’t win!
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by wander »

sean.mcgrath wrote: Sun Jun 20, 2021 4:23 am
wander wrote: Sat Jun 19, 2021 1:16 pm You cannot live below your means, invest in a low cost total stock market index fund, earn minimum wage and magically become wealth. You have to make good income first.
Absolutely untrue in reference to the original question. Building wealth is not the same as becoming wealthy. I won't become Bill Gates, but the principles of building wealth apply to everyone.
If the principles of building wealth apply to everyone, then the US would not need social welfare programs.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by lazybones18 »

NiceUnparticularMan wrote: Sun Jun 20, 2021 9:36 am
lazybones18 wrote: Sat Jun 19, 2021 11:39 pm what does living below your means really mean ?

is there a % of income i need to save or spend ?
Assuming the same investment plan, the more you save and invest, the more you end up with.

But spending in the short term on some things, like say your own career through education or sometimes a move or so on, might actually increase your long term income and savings.

And even too much deferral of spending on things that have no financial benefit but would have personal, family, community, or societal benefit could be adverse in the end. Because you only have so much time and opportunities to do such things, and you don't know how much time you have.

So when is saving enough? That depends on your goals, and then how well your investment plan goes, and how close your life is to what you were expecting. And you can define your goals and your expectations, but knowing how your investment plan will go? How your life will actually go? That's really hard.

So my answer to your question is we are all just guessing with our savings/spending decisions, and hoping it works out reasonably well. And some guesses might be better than others, but there is a lot of irreducible uncertainty, and that is part of why luck will very much play a large role in the ultimate outcome.
I save ok to decent amount of money. at the same time, I spend lavishly on things like $5,000 on a weekend trip to Vegas with wife, bought a M3 car, food/alcohol in high-end restaurants, trying to get into hobbies etc. However, I am 34 year old and close to $2M net worth (Mostly 401k, stocks and real estate). annual household income has been around $300-$350k for last 4-5 years.

after being on this forum, i kinda feel bad spending money on stupid [expletive deleted by moderator oldcomputerguy]. At the time time I wonder why am I make money when i cannot enjoy it. But I always wonder am I living below my means ?
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by sean.mcgrath »

wander wrote: Sun Jun 20, 2021 9:38 pm
sean.mcgrath wrote: Sun Jun 20, 2021 4:23 am
wander wrote: Sat Jun 19, 2021 1:16 pm You cannot live below your means, invest in a low cost total stock market index fund, earn minimum wage and magically become wealth. You have to make good income first.
Absolutely untrue in reference to the original question. Building wealth is not the same as becoming wealthy. I won't become Bill Gates, but the principles of building wealth apply to everyone.
If the principles of building wealth apply to everyone, then the US would not need social welfare programs.

Of course the principles apply to everyone. I was responding in that post to the confusion between wealth and wealthy. The original post was about building wealth, but you replied about becoming wealthy. Those are different topics. My point was that you don't need to "make good income first" in order to start building wealth.

Now you are confusing principles with implementation. Re. implementation: if you read my posts, you will see that I explicitly wrote that not everyone can implement. No one is arguing that safety nets are unnecessary.

sean.mcgrath wrote: Sun Jun 20, 2021 4:23 am
Yes, and it's true for almost every income level. What I've taught our kids:
  • Unless you are truly in poverty, everyone can save 20 - 30% of their net income. Low-earning single parents face a brutal financial challenge, but almost all low-earning single or low-earning two income couples with children can do this.
I stand by my statement that "almost all" 'single people' and 'two income couples with children' above the poverty earnings line can start to build wealth. And I will add that it will be life-changing for them if they manage to do so.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by investingdad »

This probably has been said already.

Yes, it’s that simple but not that easy.

You may also want to add in:

- avoid self destructive life choices
- marry somebody that shares your vision
- live a healthy lifestyle
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by nigel_ht »

tibbitts wrote: Sat Jun 19, 2021 11:39 am
Marseille07 wrote: Sat Jun 19, 2021 11:23 am
tvubpwcisla wrote: Sat Jun 19, 2021 9:42 am It seems like building long term wealth is pretty simple. Live below your means and invest in a low cost total stock market index fund. Am I missing anything other than stay the course? Is it really that easy?
It's simple but not necessarily easy because stocks can stay down for a long time. Nikkei still hasn't recovered their 1989 levels after 30+ years.
That's a good point that we forget sometimes because we haven't had a prolonged downturn lately. Had there been index funds widely available in the ten or fifteen years prior to the early 1980s, I'm not sure you would have been thinking about them at that time in terms of wealth-building. I know that when I first started looking at investments in the '70s, I wasn't impressed by any wealth-building effect. And lower expense ratios wouldn't have moved that needle for me.
Older folks that have been following this plan was invested in the 70s, 80s, 90s, etc. Plenty of downturns during those periods.

Nikkei matters if it happens just before you retire. For early accumulators with less in the market and retiring today it wasn’t as big a deal.

If Nikkei happens to me right now it would suck…but my kids would be fine. By the time they retire they’d have sufficient growth to have wealth following the simple recipe of LBYM, save as much as you can and invest in index funds.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by nigel_ht »

lazybones18 wrote: Sun Jun 20, 2021 11:20 pm
NiceUnparticularMan wrote: Sun Jun 20, 2021 9:36 am
lazybones18 wrote: Sat Jun 19, 2021 11:39 pm what does living below your means really mean ?

is there a % of income i need to save or spend ?
Assuming the same investment plan, the more you save and invest, the more you end up with.

But spending in the short term on some things, like say your own career through education or sometimes a move or so on, might actually increase your long term income and savings.

And even too much deferral of spending on things that have no financial benefit but would have personal, family, community, or societal benefit could be adverse in the end. Because you only have so much time and opportunities to do such things, and you don't know how much time you have.

So when is saving enough? That depends on your goals, and then how well your investment plan goes, and how close your life is to what you were expecting. And you can define your goals and your expectations, but knowing how your investment plan will go? How your life will actually go? That's really hard.

So my answer to your question is we are all just guessing with our savings/spending decisions, and hoping it works out reasonably well. And some guesses might be better than others, but there is a lot of irreducible uncertainty, and that is part of why luck will very much play a large role in the ultimate outcome.
I save ok to decent amount of money. at the same time, I spend lavishly on things like $5,000 on a weekend trip to Vegas with wife, bought a M3 car, food/alcohol in high-end restaurants, trying to get into hobbies etc. However, I am 34 year old and close to $2M net worth (Mostly 401k, stocks and real estate). annual household income has been around $300-$350k for last 4-5 years.

after being on this forum, i kinda feel bad spending money on stupid [expletive deleted by moderator oldcomputerguy]. At the time time I wonder why am I make money when i cannot enjoy it. But I always wonder am I living below my means ?
Yes you are.

However, whether that means your current lifestyle is sustainable in retirement depends…if you use the 4% rule of thumb that will give you an idea of what your portfolio will support. If you’re happy with that you’re good.

If you can have an inflation adjusted $8-10M by 64 that should be plenty for your current lifestyle…
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by nigel_ht »

diabelli wrote: Sun Jun 20, 2021 7:39 am will this hold true if there is a 30 year period of absent real returns?
Recently I find I'm worrying about this more.
I suppose if you dollar-cost-average i.e. invest regularly, you're still taking advantage of volatility and coming out with some return in the end...
That hasn’t happened in the US yet…and while it could I wouldn’t worry too much about it. I guess if I was worried it do market weight global.

Whatever the outcome LBYM and saving is better than not..while 20%+ is a lot better than 5% if you even manage 5% you won’t be one of the ~40% of folks who can’t handle an unexpected $1000 expense without borrowing.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by 41Fin »

The formula for success is very simple.

Avoiding the traps life puts out to suck your cash is the hard part.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by TomatoTomahto »

BogleFan510 wrote: Mon Jun 21, 2021 8:30 am
TomatoTomahto wrote: Sat Jun 19, 2021 9:48 am We are not super frugal, but do live “below our means.” It’s working for us. Working even better for our frugal son.
Same here. Depends on definition of 'long term wealth' though. Comfortable 7 figure retirement wealth for typical US resident couple, sure.
True enough, but I took the question to mean 7 and 8 digit wealth, both of which are possible but not guaranteed. 9 digit and beyond won’t be based on LBYM or frugality, although Mike Tyson might disagree :shock:
I get the FI part but not the RE part of FIRE.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by Wannaretireearly »

MnD wrote: Sun Jun 20, 2021 8:54 am It worked for us. We saved around 25% of our income on average from 1986 through 2018.
Our primary retirement investment account had/has expenses of 0.04%.
I don't think we've ever gone under 66% stocks or over 80%.

Had kids, DW took 14 years off from paid work in the middle, I made a lot of suboptimal investment decisions in smaller accounts outside of our primary retirement savings account especially 1986 through late 90's. But no disasters in investing, marriage, health or jobwise. My jobs were stable and paid well so we were not frugal in any real sense of the word. Just pretended our gross income was 75% of what it actually was which provided a comfortable but not extravagant lifestyle. Regardless of income, many people simply can't restrain themselves from spending nearly all or all of it.

Switched gears to spending from portfolio on the first month after retirement per our IPS below and are enjoying a very comfortable financial lifestyle in early retirement. A lot of people struggle with that here and wealth building becomes a "forever" preoccupation.
Great post MnD. Congrats on your early retirement.
BTW, I love the simplicity of your IPS. I think it matches my investment 'strategy' & importantly is is an IPS I could actually follow/execute on!
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by Marmot »

Silence Dogood wrote: Sat Jun 19, 2021 12:54 pm
coffeeblack wrote: Sat Jun 19, 2021 11:50 am What if they just bought one fund. Lets say lifestyle strategy fund at 20 years old. Invested in it for 30 years or more. they can even put it on auto pilot. That would have a very high probability of success. That seems pretty simple. Perhaps not easy because it requires someone who has the will to avoid some excessive spending and channel it into saving.
I've done something similar to this.

My Roth IRA has been exclusively invested in the Vanguard Target Retirement 2055 fund since I first opened it, age 20.

(I also have a 401(k), which does not offer this fund, but I use other available index funds.)
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by Silverado »

wander wrote: Sun Jun 20, 2021 9:38 pm
sean.mcgrath wrote: Sun Jun 20, 2021 4:23 am
wander wrote: Sat Jun 19, 2021 1:16 pm You cannot live below your means, invest in a low cost total stock market index fund, earn minimum wage and magically become wealth. You have to make good income first.
Absolutely untrue in reference to the original question. Building wealth is not the same as becoming wealthy. I won't become Bill Gates, but the principles of building wealth apply to everyone.
If the principles of building wealth apply to everyone, then the US would not need social welfare programs.
The principles are not gravity, you don’t have to follow them. Due to circumstances beyond one’s control, there will always be some need for some help. However, just going by observations of my own family, the number is way lower than what I see reported. It’s a slippery slope, and about all one can do is try to educate, encourage, congratulate, encourage again, and so on those in our sphere of influence.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by TonyDAntonio »

tvubpwcisla wrote: Sat Jun 19, 2021 9:42 am It seems like building long term wealth is pretty simple. Live below your means and invest in a low cost total stock market index fund. Am I missing anything other than stay the course? Is it really that easy?
Yes. Be prepared to feel that it's not working at multiple times along the way, especially when you've been at it 20+ years and the markets tank. If you're still able to live below your means and invest more during those times (hopefully you are getting raises) you should be golden. That's my story.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by garlandwhizzer »

Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund
Yes. There are alternate approaches, but none more consistently successful in risk adjusted returns.

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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by gobel »

The market has gone up so much since the 80s and 90s that everyone retiring today thinks it's a guaranteed no brainer. Will that happen again for the next 30 years, or what if you had been living in a different country than the US for the last 30?

For example, I only recently realized that after maxing my 401k for 30 years, it's 1.x million now and will easily take me thru 70yo, when I should get ~40k SS. All the other penny-pinching was totally unnecessary! But then can I really advise my kids to just max their 401k and spend everything else and it will work out?
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by beernutz »

Elric wrote: Sun Jun 20, 2021 10:23 am
sean.mcgrath wrote: Sun Jun 20, 2021 7:34 am
I still challenge the idea that younger people will struggle to save 20% and then suddenly develop the discipline. Especially pre-children, it should be easy for virtually all full-time employed people in their twenties. After food and rent, almost everything is discretionary.
Unless your full-time pay won't even cover.hoisimg, of course.
"Virtually all" full-time employed cannot save this amount. Many, perhaps even a majority, bit not at all true for a sizable minority. And this remains true into the 30's and older. You won't find them on the Bogleheads forums, investing is not their number 1, 2, or number 3 issue. https://www.businessinsider.com/full-ti ... -us-2020-7
That article claims you need to earn almost $24/hour which is $48,000 per year full time to afford a 2 bedroom rental anywhere in the US. That is patently ridiculous.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by niagara_guy »

I made a reasonable salary (but not a lot of money) and I started saving late (my mistake). I then saved 15% of my salary in my 401k for about 25 years (and saved more at the end) and ended up with a very nice portfolio. If you put in 10% of your pay from an early age, invest it well (index funds for me), are fairly aggressive (more in stocks, less in bonds) you may end up with a very nice nest egg. It worked for me.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by HootingSloth »

beernutz wrote: Mon Jun 21, 2021 2:58 pm
Elric wrote: Sun Jun 20, 2021 10:23 am
sean.mcgrath wrote: Sun Jun 20, 2021 7:34 am
I still challenge the idea that younger people will struggle to save 20% and then suddenly develop the discipline. Especially pre-children, it should be easy for virtually all full-time employed people in their twenties. After food and rent, almost everything is discretionary.
Unless your full-time pay won't even cover.hoisimg, of course.
"Virtually all" full-time employed cannot save this amount. Many, perhaps even a majority, bit not at all true for a sizable minority. And this remains true into the 30's and older. You won't find them on the Bogleheads forums, investing is not their number 1, 2, or number 3 issue. https://www.businessinsider.com/full-ti ... -us-2020-7
That article claims you need to earn almost $24/hour which is $48,000 per year full time to afford a 2 bedroom rental anywhere in the US. That is patently ridiculous.
The report describes in detail where this number comes from, if you are interested. Roughly speaking, it assumes that you work full-time, spend 30% of gross income on rent, and rent "at the 40th percentile of adjusted standard quality two-bedroom gross rents" based on the most recent five-year census data. It is not intended to be an amount that applies "anywhere in the US," or that is required to afford the lowest-available standard of housing. Instead, it is more like a national average of the amount to afford an apartment in "decent condition" without stretching the rest of your budget beyond a typical rule of thumb for picking a rent budget. Variation from place to place is, as you would expect, very large. For example, according to the report, the hourly wage to afford a 2 bedroom rental in Alabama is $11.77/hour.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by 808surfboy »

Related to this topic-- What percentage of people start investing in index funds during first year of employment and then retire early?
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by Normchad »

808surfboy wrote: Mon Jun 21, 2021 6:57 pm Related to this topic-- What percentage of people start investing in index funds during first year of employment and then retire early?
That should really be it’s own thread. Personally, I started investing in index funds in 1992, and I am FI now at the age of 52. I’m considering retirement in the next 12 months, but haven’t made that decision yet. I have enough in index funds that I should be able to maintain my current spending level, and buy $30K of healthcare, forever. No inheritance. No windfall. No pension. But my salary has been high the last ten years, and I greatly accelerated my savings.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by lostdog »

It's not easy because of human emotion. If you can invest like a Vulcan, you'll do just fine.

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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by HomerJ »

gobel wrote: Mon Jun 21, 2021 2:04 pm The market has gone up so much since the 80s and 90s that everyone retiring today thinks it's a guaranteed no brainer. Will that happen again for the next 30 years, or what if you had been living in a different country than the US for the last 30?

For example, I only recently realized that after maxing my 401k for 30 years, it's 1.x million now and will easily take me thru 70yo, when I should get ~40k SS. All the other penny-pinching was totally unnecessary! But then can I really advise my kids to just max their 401k and spend everything else and it will work out?
Every 30 year period in the U.S. looks like this...

Not just 80s and 90s.

So far.

It may not continue in the future... but it's not just a product of the 80s and 90s..

In fact, we had plenty of people posting here in 2011 very sad that they had missed the 90s... They thought there would never be another huge bull market. But then we got 10 years of growth....

2021-2031 may be slow (who knows?), but the odds are pretty good that there will be another big bull market someday in future.

1913-1929 Bull market (16 years)
1929-1947 Bear market (18 years)
1947-1966 Bull market (19 years)
1966-1982 Bear market (16 years)
1982-2000 Bull market (18 years)
2000-2011 Bear market (11 years)
2011-2021 Bull market (10 years so far)

Every 30 years seems to have a bear and a bull market. And they average out to 10% nominal return a year. That long-term 10% return from the market INCLUDES the bear market... It INCLUDES the crashes... Just buying and holding through the bear market still made you rich in the past.

Will it continue? No one knows...

But it wasn't just one time that 30-year returns were good.
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by stoptothink »

beernutz wrote: Mon Jun 21, 2021 2:58 pm
Elric wrote: Sun Jun 20, 2021 10:23 am
sean.mcgrath wrote: Sun Jun 20, 2021 7:34 am
I still challenge the idea that younger people will struggle to save 20% and then suddenly develop the discipline. Especially pre-children, it should be easy for virtually all full-time employed people in their twenties. After food and rent, almost everything is discretionary.
Unless your full-time pay won't even cover.hoisimg, of course.
"Virtually all" full-time employed cannot save this amount. Many, perhaps even a majority, bit not at all true for a sizable minority. And this remains true into the 30's and older. You won't find them on the Bogleheads forums, investing is not their number 1, 2, or number 3 issue. https://www.businessinsider.com/full-ti ... -us-2020-7
That article claims you need to earn almost $24/hour which is $48,000 per year full time to afford a 2 bedroom rental anywhere in the US. That is patently ridiculous.
My younger sister earns (I believe) $18/hr and has her own apartment with her daughter in the LA-area. Granted, it is a 1-bedroom. Another sister is in Salt Lake, she has her own 1-bedroom, she hasn't worked since March of last year and before that made like $14/hr at a cafe. They don't live high on the hog and I assume they save nothing, but they have their own places making far less than $24/hr in medium to high COL areas and nobody is helping them (well, SLC sister has been on unemployment for well over a year, but that is a topic of discussion that would get this thread shut down).
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Re: Is the secret to long term wealth as simple as living below your means and investing in a low cost index fund

Post by mikejuss »

Yes, it does work--but it takes a long time. Be patient. Stay the course.
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