CNN Money tells a 28-year-old reader . Their thoughts:
I don't care how brilliant an investor you are. If you're not putting away a decent amount of money on a regular basis throughout your career, your chances of accumulating a million bucks are lower than LeBron's chances of getting elected mayor of Cleveland.
My point is to show that the more you save, the less you have to count on lofty returns. It's important to keep that in mind because ultimately we have more control over how much we save than the investment returns we earn.
That said, you don't want to invest so conservatively that you end up having to save so much that you live like an ascetic. You should be willing to take prudent risks, especially when you're young, in hopes of earning a higher rate of return and making your savings burden manageable. But you don't want to invest so aggressively that you're left in the lurch late in life if you don't get the rosy investment performance you'd hoped for.
This is very similar to what I said when I talked about the most important way to grow your investments (which, by the way, is to invest for the longest amount of time possible.) Right after that is "saving as much as possible".)
Having to count on 15% (or even 10%) returns in order to reach an investment goal is risky and, in most cases, unreasonable (15% is certainly unreasonable.) So I invest in index funds (Vanguard funds to be exact) to get a "decent" return, but count primarily on my ability to save a bundle of money over a long period of time as the main way of growing my total portfolio.
Now for those of you who are chomping at the bit to say "$1 million is not enough", CNN Money covers that issue too:
I'm not sure how you arrived at $1 million as your goal. Maybe it's just a nice big round number. Remember, though, having a million bucks 37 years from now isn't like having that sum today. In fact, assuming a modest 2.5% inflation rate, $1 million in 2047 would be the equivalent of having about $400,000 now. Or, viewed another way, you would need about $2.5 million in 2047 to have the purchasing power of $1 million today.
Finally, rather than shooting for a big lump sum, I think you're better off thinking about how much income you'll eventually have to replace to maintain your standard of living in retirement, and then figuring out what combination of saving and investing, along with other resources like Social Security, gives you a reasonable shot at hitting your goal.
Pretty good advice in my opinion...