Anyone thinking about a New Year’s money resolution? I remember when I was a kid my dad telling me, “Saving money is like planting a tree. The best time to plant a tree was yesterday. The second-best time is today.” I’d be thinking tomorrow would be just fine too, so I could go play street hockey.
We’d get my change, dump it on the floor, and start feeding quarters, dimes, nickels, and yes, pennies into paper rolls. We’d count the dollar bills, some fives, maybe a ten or twenty and then grab my bank passbook and make the deposit.
Counting money, once we got going, was fun, especially after the teller ran it through the machine and I could actually see how much it grew from our last deposit. It didn’t have to be a big increase but after years of doing it, it became something to be proud of.
That’s the thing about saving money. It’s hard. It’s not as fun as street hockey. But once you start doing it and get some momentum, the habit of saving is automatic. You don’t have to think about it. You’re just planting trees. No big deal. And even when the deposits were small, like planting a tree, they would grow over time.
Now, let’s talk about investing, because that’s not to be confused with saving. With investing you’re depending on something else to make money for you, like the stock market. You’re relying on a group of companies to do that work and hopefully not lose your hard earning nickels and dimes. Stocks, like trees, don’t grow to the sky.
Sure, stocks can get big but at some point they stop growing. Looking at this market, for example, the big stocks in the S&P 500 are ruling the forest. The influence the largest 10 stocks have is like oaks towering over maples. How high the oaks grow has nothing to do with how much money you save.
Action Line: The relative performance of the 10-largets U.S. stocks relative to the market before reaching that lofty level, compared to the years after, isn’t promising. The performance over three-, five-, and ten-year periods before reaching that level far exceeds the years after they’ve reached that level. Make your list. Start your savings. And understand what you control.
E.J. Smith - Your Survival Guy
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