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Your Pre-Retirement Years: A Straightforward Way to Earn Over 9% with Vanguard Wellesley

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Over the past year, the total return for Vanguard Wellesley has been just over five and half percent. “Five and a half percent? What’s so great about that,” you might think.

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Well, it can be great if you’re a patient investor and you allow the miracle of compound interest, what Albert Einstein is said to have referred to as the eighth wonder of the world, to work its magic for you. Father Time can be your friend, as I will explain in a moment.

Yesterday, I was speaking with a client whom I’ve been working with since his mid-50s. He’s in his early 70s now but it hardly feels like close to 20-years since we began working together. He has already weathered two destructive crashes in the stock market this century and has a balanced portfolio constructed to do battle against the next one.

Unfortunately, most investors forget the pain they experienced during the two crashes this century because it’s either too painful to remember how much money they lost, or they’ve been too busy trying to “make it back.”

When the S&P 500 lost close to fifty percent from its October 9, 2007 high to its March 9, 2009 low, it felt like the end of the world. It was a tough time. I’ll never forget the conversations I had with investors during that storm.

But, like in the movie Back to the Future where Marty McFly’s siblings disappear from history, soon ’07 through ’09 will disappear—the ten-year historical return numbers publicized by most fund companies will not capture it. Neophyte investors, with a false sense of security, will explain to their spouse, “I like this stock/fund/etf because it has a sterling ten-year track record.”

Back to reality and compound interest.

The miracle of a five and half percent return compounded over 20-years is multi-fold. First, because you weren’t bullied by Marty McFly’s, Biff, you put Father Time to work for you. And second, your portfolio multiplied by a factor of 2.917757. In other words, $100,000 turned into $291,775.70, which looks more like an average of just over nine and a half percent per year. That’s the F-U-N part of compound interest and it’s what makes a ho-hum five and a half percent—G-R-E-A-T.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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