Make Money with Your Eyes Closed? Heres How.
In my first blog commemorating Financial Literacy Month, I wrote about the importance of deferring gratification. In this installment, I will focus on how a single decision can promote a lifetime of good habits and eliminate the need to debate investment decisions that should be taken for granted. In short, talk to your clients about the benefits of automating their investments into the well-designed portfolios that you have constructed for them.

In an early season of the TV show 30 Rock, Liz Lemon (Tina Fey) is roused to get her financial situation in order. She says to Jack Donaghy (Alec Baldwin), “I have gotta make money and save it. And I have to do that thing that rich people do where they turn money into more money. Can you teach me how to do that?” Jack replies, “With my eyes closed.”

Alas, Jack never indulges us with his investment process.

Benefits of Time in the Market

At the risk of being presumptuous, let’s contemplate what Jack might have been thinking. Have your clients consider the beginning of a 35-year career:

  • We assume that their starting salary is $35,000, growing each year by the rate of inflation.
  • On day one they elect to invest 10% of every bi-weekly paycheck into the equity market.
  • Their balance, assuming the same market returns of the prior 35 years, grows to roughly $1.5 million.

They paid themselves first and benefited from the time in the market. Most likely, they never missed the 10% being taken out each pay period because it was out of sight and likely out of mind.

On the flipside, they could have instead made the decision to invest once a year. Unfortunately, they end up with less time in the market. But it gets worse. While many prefer this arrangement, as it enables them to assess their financial situation and evaluate investment opportunities that may or may not be presenting themselves, herein lies the rub.

Excuses Not to Invest Can Be Costly

We find that too often investors concoct reasons to not invest in a certain year. Maybe it’s the wedding year. Parties and honeymoons can be expensive. Maybe it’s the year their first child is born, or their second. Lord knows kids can be expensive. Maybe it’s the year of a massive market sell-off or a financial crisis. We are all inherently risk averse.

Before they know it, they’ve missed investing in five of the 35 years. In the end, using the same hypothetical situation as above, the final balance is roughly $500,000 less than if they had just decided to automate their investments on a bi-weekly basis from the start of their career. Ouch. Exhibit 1

Exhibit 1: Automate Your Investments

So how do we turn money into more money with our eyes closed?

History tells us to save money and invest it in the market as early and as often as possible. By automating their investments, your clients set themselves upon a path toward financial health and eliminate one more thing they need to remember to do.  As another 30 Rock Tracy Jordan (Tracy Morgan) said, “Who has the time, with work, family, and hobbies, and listing excuses?

Or as Tracy also said, “I’m gonna take a nap.  See you in 10 hours.”

Tell your clients to go ahead and take a nap if they want, just make sure their money is working while they sleep.