If You Get This One Investing Trick Right, You’re Well On Your Way to Retirement

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It’s “so simple that most people don’t believe it,” according to finance guru Ramit Sethi. 

Many people see investing as a complex subject, where you need to have lots of know-how to be successful. While it’s far from the truth, this misconception often leaves would-be investors hesitant to get started. They assume they still have a lot to learn and might lose money if they’re not careful.

It’s actually easy to invest and work your way toward a strong retirement fund. Financial advisor and I Will Teach You To Be Rich author Ramit Sethi frequently shares an excellent way to invest your money. He says “get this right and you’re 90% of the way there.”

The only investing trick you need

There’s a simple trick that many successful investors swear by — set it and forget it. Sethi recommends it, Warren Buffett recommends it, and they’re just two of the more famous examples.

For this method, start by selecting one or more passive investments. These are investments that do the work for you by putting your money in a large number of stocks (and sometimes bonds). Just about all the good stock brokers have lots of funds to choose from that work well as passive investments. Here are a few popular options:

Index funds follow a specific market index, such as the S&P 500 (500 of the largest publicly traded U.S. companies).Target-date funds invest money based on a target retirement year.Mutual funds are professionally managed investment funds.

If you already have a brokerage account or a retirement account, see what’s offered there first. If not, or if you’re not sure what to pick, look into the best index funds for some low-fee options. For an investment that will follow the stock market fairly well, an S&P 500 index fund is a great choice.

Once you’ve picked out your investments, invest monthly and take a hands-off approach. Consistency is key here. Decide on how much you can afford to invest per month, such as 10% of your monthly income. If possible, automate this process by setting up a recurring monthly investment.

This is one of the simplest and most effective ways to build wealth. Although it has ups and downs, the average stock market return is about 10% per year. If you’re a long-term investor, the odds are in your favor, especially if you’re investing more money every month.

Setting yourself up for a comfortable retirement

You don’t need to get every little thing right to invest for retirement. All you really need to do is get a few big things right. To recap, here’s what to focus on:

Choose quality passive investments you can buy every month. Options include index funds, target-date funds, and mutual funds.Decide how much to invest every month. If you can max out retirement account contributions, that’s great. But consistency is what’s most important here.Set it and forget it. Ideally, set up automatic monthly investments. From here, let your investments do their job and don’t take any money out.

You can do all this through an individual brokerage account, an individual retirement account (IRA), or a 401(k). Since IRAs and 401(k)s offer tax benefits, it’s generally recommended to prioritize funding those.

There are certainly more advanced ways to invest. Some people like picking stocks and building their own portfolios, to give one example. If you’re interested in going further with investing, that may be something to consider. But if you want to keep it simple, the set-it-and-forget-it approach is hard to beat.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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