The key to building wealth? Start slowly and be persistent, author says

April 27, 2014 

What’s the best way for young investors to build wealth for retirement? Ignore your human instincts, says a new e-book targeted at 20- and 30-somethings.

“If You Can: How Millennials Can Get Rich Slowly,” was written by William Bernstein, a retired neurologist, who has authored several books about investing. Although Bernstein manages investments for high-net-worth individuals, he decided to write a book for young investors because he is concerned about their financial future.

“I want to do something for young people because, I mean, they’re screwed,” he said.

“They don’t have pensions anymore. They probably won’t benefit as richly from Social Security as their parents will. They don’t have a choice but to do this (save for retirement) on their own.”

Despite the dire outlook, Bernstein says there are things young people can do to secure their financial future. Here, you’ll find a summary of Bernstein’s advice for how to save for retirement, as well as what you need to do to stay on track. For more detail, you can download the e-book from Amazon. On select days, including April 25, the download is free. Otherwise, the price is 99 cents.

 • Save 15 percent every year. The first step Bernstein recommends is to save 15 percent of your salary every year. Do that and you should have a plump savings balance by the time you hit retirement age.

For example, let’s say your annual salary is $50,000 and you contribute 15 percent each year to a 401(k) (including any employer match). By the time you reach full retirement age at 67, your balance would grow to $1.6 million, assuming a conservative 5 percent annualized return and yearly wage increases of 3 percent.

Bernstein suggests getting going — even if you can’t afford the full 15 percent right away — by age 25.

 • Choose three index funds. A simple portfolio made up of three low-cost index funds — a U.S. total stock market fund, an international total stock market fund and a U.S. total bond market fund — will suffice.

 • Keep spending in check. Small expenses, such as a cable TV package or coffee addiction, can easily chip away at your savings goal, especially when you’re on a tight budget. So pay yourself first.

 • Think long term. Studying a little financial history, another one of Bernstein’s suggestions for staying on track, will help you realize that.

“Once you’ve read the script, you know how the movie ends,” he says.

Carolyn Bigda writes Getting Started for the Chicago Tribune. yourmoney@tribune.com.

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