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HowYoung People Can Get Rich Slowly

WILLIAMBERNSTEIN, EFFICIENT FRONTIER ADVISORS
MAY 6, 2014, 1:50 PM
Today's young people can retire
comfortably with $1 million in the
bank. All it takes is starting early,
spending 15 minutes a year
rebalancing their portfolio, and
avoiding financial professionals
who are mostly concerned with
making themselves money.
At least that's the message
of illiam !ernstein, cofounder of
investment management
firm "fficient #rontier
Advisors, who recently published
the short ebook $%f &ou 'an( )ow
*illennials 'an +et ,ich -lowly.$
%t clearly resonates. The book,
available for free on his
website and for .. cents on Ama/on, is being snapped up by readers, and a 0ew &ork Times
story about !ernstein has spent the last several days at the top of the publication's most
emailed list.
The popular interest seems to be a combination of older people sharing the te1t with their
young family members and unspoken an1iety about saving for retirement, !ernstein tells
!usiness %nsider. $2f course, what %'d really like to believe,$ he says, $is that %'ve successfully
stoked latent public outrage over a retirement system that e1pects the folks who teach our kids
and flip our burgers to somehow, against all odds, manage their retirement portfolios.$
-o how can you get rich slowly3 )ere's some of !ernstein's advice, e1cerpted from the ebook
with his permission(
***
Would you believe me if I told you that there's an investment strategy that a seven-year-old
could understand and that will take you 15 minutes of work per year, outperform !" of finance
professionals in the long run, and make you a millionaire over time#
Well, it is true, and here it is$ %tart by saving 15" of your salary at age &5 into a '!1(k) plan, an
I*+, or a ta,able account (or all three)- .ut e/ual amounts of that 15" into 0ust three different
mutual funds$
+ 1-%- total stock market inde, fund
+n international total stock market inde, fund
+ 1-%- total bond market inde, fund
2ver time, the three funds will grow at different rates, so once per year you'll ad0ust their
amounts so that they're again e/ual- (3hat's the 15 minutes per year, assuming you've enrolled
in an automatic savings plan-)
3hat's it4 if you can follow this simple recipe throughout your working career, you will almost
certainly beat out most professional investors- 5ore importantly, you'll likely accumulate
enough savings to retire comfortably-
William J. Bernstein
Investment advisor WilliamBernstein
But You're Still Screwed
5ost young people believe that
%ocial %ecurity won't be there for
them when they retire, and that
this is a ma0or reason why their
retirements will not be as
comfortable as their parents- *est
assured that you will get %ocial
%ecurity4 its imbalances are
relatively minor and fi,able, and
even if nothing is done, which is
highly unlikely in view of the
program's popularity, you'll still get
around three-/uarters of your
promised benefit-
3he real reason why you're going to
have a crummy retirement is that
the conventional 6defined benefit6
pension plan of your parents'
generation, which provided a
steady and reliable stream of
income for as long as they lived,
has gone the way of disco- 3here's
only one person who can repair the
gap left by the disappearance of
these plans, and you know who
that is- 1nless you act with purpose and vigor, your retirement options may well range between
moving in with your kids and sleeping under a bridge in the rain-
7urther, the most important word is the I7 in the above 6if you can follow this simple recipe,6
because, you see, it's a very, very big if-
+t first blush, consistently saving 15" of your income into three inde, funds seems easy, but
saying that you can become comfortably well-to-do and retire successfully by doing so is the
same as saying that you'll get trim and fit by eating less and e,ercising more-
.eople get fat because they like pi88a more than fresh fruit and vegetables and would rather
watch 5onday night football than go to the gym or 0og a few miles- 9ieting and investing are
both simple, but neither is easy. (+nd I should know, since I've been much more successful at
the latter than at the former-)
In your parents' day, the traditional pension plan took care of all the hard work and discipline of
saving and investing, but in its absence, this responsibility falls on your shoulders- In effect, the
traditional pension plan was an investing fat farm that involuntarily limited calorie intake and
made participants run five miles per day- 3oo bad that, e,cept for the luckiest workers, such as
corporate e,ecutives and military personnel, these plans are disappearing-
:ad things almost inevitably happen to people who try to save and invest for retirement on their
own, and if you're going to succeed, you're going to need to avoid them- 3o be precise, five bad
things ; hurdles, if you will ; must be overcome if you are to succeed and retire successfully$
Hurdle number one
.eople spend too much money- 3hey decide that they need the newest i.hone, the most
fashionable clothes, the fanciest car, or a <ancun vacation- %ay you're earning =5!,!!! per year,
15" of which is =>,5!!, or =?&5 per month-
In this day and age, that's a painfully thin margin of saving, and it can be wiped out simply by
stringing together several seemingly innocent e,penditures, each of which might nick your
savings by =1!! or so per month$ a latte per day, a too-rich cable package, an apartment that's a
little too tony, a dress or pair of brand-name sneakers you really don't need, a few unnecessary