How to 10X Your Retirement Savings While Barely Lifting a Finger

Here’s how investing passively in the total U.S. stock market can grow your portfolio exponentially over time.

| More on:
retirees and finances

Image source: Getty Images

John Bogle, pioneer of the index fund and founder of Vanguard, once said that “gunning for average is your best shot at finishing above average.” What he meant by this was that the majority of actively managed funds and stock pickers would fail to beat a simple index fund.

By buying an index fund, reinvesting dividends, staying the course, and holding for the long term, investors can get rich slowly. Albert Einstein once called compound interest “the eighth wonder of the world,” and for good reason. The biggest asset young investors have is time.

If you’re tired of watching the up and down movements of the current bear market and want to grow your portfolio in a hands-off, lazy manner, this guide is for you. I’ll show you how investing in a low-cost index exchange-traded fund, or ETF would have played out historically.

The benefits of index investing

Stock picking can be hard. Investors who pick stocks need to consistently make the right calls, have rules to take profits or cut losses, and avoid getting emotional. They need to keep up to date with every corporate action and listen in to earnings calls. Keeping up with the market news can get exhausting.

With an index fund, there is no need for that. A good broad-market index fund will track thousands of stocks, diversified among all 11 stock market sectors, and across all market cap sizes. Your return will always match the market’s long-term average net of fees with this approach.

With an index fund, there’s no need to closely monitor and worry about your holdings. All you need to do is invest consistently, reinvest dividends promptly, and stay the course. It encourages you to stay hands-off and not lose sleep over your investment’s performance.

A historical example

Imagine you started investing back in 1971 as a 22-year-old with just $10,000. You put it all in an index fund tracking the CRSP Total U.S. Stock Market Index, which holds over 3,500 stocks and vowed to hold no matter what happened in the markets, and reinvest any dividends promptly.

Fast forward 51 years later, your humble $10,000 investment would have grown to $1,525,438 at an 10.38% annualized rate of return without you investing anything beyond your initial purchase.

You didn’t have to do any research, read the financial news, listen to earnings reports, or conduct analysis. All you did was buy, reinvest dividends, and hold. The key to success here was trusting that the market’s average return is enough for a long-term investor and avoiding bad behaviours.

The results would have been even more incredible had you made consistent contributions over time. Here are the results if you had contributed an additional $500 per month, or just $6,000 per year:

The key to success with this approach is picking low-cost, broadly diversified index funds, consistently making contributions, staying the course, not panic-selling, and maintaining a long-term perspective.

A great Canadian ETF to put this strategy into play is Vanguard Total U.S. Stock Market ETF (TSX:VUN), which costs an expense ratio of just 0.16% annually.

Once you have this down, you can spice it up by trying your hand at stock picking. Making the core of your overall portfolio a broad-market index fund and then adding a few choice stocks of your own could be a great hobby and a way of potentially beating the market (and the Fool has some great recommendations below).

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Stocks for Beginners

stream movies at home
Stocks for Beginners

Is Cineplex Stock Worth Buying in February 2023?

Is Cineplex stock worth buying? That's a question many investors still ponder. Let's try to answer that question.

Read more »

Question marks in a pile
Stocks for Beginners

Element Stock: Can This Top 2022 Gainer Keep the Momentum Going?

Up 53% in the last year, Element stock (TSX:EFN) could climb even higher, as it continues to take on clients…

Read more »

Young adult woman walking up the stairs with sun sport background
Stocks for Beginners

2 Dividend Stocks for Beginner Investors in February 2023

Dividend stocks aren't created equal. Here are two low-risk dividend stocks that beginner investors can consider in February 2023.

Read more »

calculate and analyze stock
Stocks for Beginners

4 Top TSX Stocks for Beginners in 2023

As a novice investor, your goal might be to invest in companies that offer a healthy mix of growth, safety,…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

These 3 TSX Stocks Are Set to Soar in 2023 and Beyond

These three TSX stocks are massively outperforming the TSX in 2023. Here's why they could continue to soar this year…

Read more »

Businessmen teamwork brainstorming meeting.
Stocks for Beginners

Why 50% of My Portfolio Is in These 3 Stocks

Here's why up to 50% of my portfolio is invested in stocks like The Toronto-Dominion Bank and two others.

Read more »

grow dividends
Stocks for Beginners

2 TSX Stocks Offering Deep Value Today

Air Canada and Spin Master are interesting value picks and potential outperformers in 2023.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Stocks for Beginners

These 2 Stocks Have Plenty of Room to Run

Growth stocks of great businesses have plenty of room to run. It's rare to find these stocks on sale. Currently,…

Read more »