It can feel discouraging to keep sacrificing as you wait for the miracle of compounding to work its magic and accumulate enough to buy a house, pay for college or fund your retirement nest egg. But ordinary people who have attained such goals — and more — are everywhere. Call them the successful investors next door. They succeed in a variety of ways, but all employ some key strategies for staying motivated and investing wisely.
If you’re saving for a specific goal (in other words, something more concrete than just a bigger portfolio), you’ve already taken a crucial step toward success, says Daniel Crosby, author of several books on behavioral finance, including the forth- coming The Soul of Wealth. Research shows that “investors who tie their financial lives to a why — to a purpose other than just investment performance — save more and are dramatically less likely to sell in bear markets,” he says. “They report greater life satisfaction. They have more fun.”
Crosby is serious about the fun part. Successful investors must be disciplined and patient, he says. One way to motivate yourself to stay on your long-term track is to “take a moment to really celebrate your investing victories” along the way.
To help you make it to your own celebrations, we asked investors who recently achieved one of their investing goals to share their stories. As you’ll see, they used different investing strategies, and they made some mistakes. But with learning, perseverance and sometimes a little luck, they are now enjoying their investing wins.
Patricia: Invest stocks for kids' homes
When she was in her early forties, Patricia Savu decided to start saving up so that she could eventually help her daughters buy homes. That was a challenge for Savu, who worked as a chemist for 3M. She had a PhD in chemistry but didn’t know much about finance. “My father didn’t think that was the kind of thing girls should know about,” explains the 71-year-old retiree.
Early in her working life, she stinted on contributions to her workplace 401(k) plan. But more than 10 years into her career, she started reading copies of the Wall Street Journal that a colleague had been leaving in the break room. As she read about the benefits of portfolio diversification, she began to worry that the outsize stake in 3M stock she had accumulated, thanks to annual option grants, made her family’s finances too dependent on the fate of one company.
By that time, she was vested in the company pension, and she had upped her 401(k) contributions (invested in broad market funds) to the maximum. So for her house fund she started a habit of regularly cashing in her stock options to diversify into technology companies that her husband, an electrical engineer, admired, such as Apple, Amazon.com and Google (now Alphabet).
Those stocks did so well that Savu became a fan of tech and growth-oriented stocks in general, although she’s a little leery of current valuations. Over time, she broadened her tech portfolio by adding low-cost exchange-traded funds such as Fidelity Nasdaq Composite Index and Technology Select Sector SPDR. (Those funds have both returned an annual average of more than 16% over the past 15 years.)
Last year, when her younger daughter got married and started looking for houses near Savu and her husband in St. Paul, the parents realized they could afford more than a down payment. The tech-heavy house fund had done so well they could cash out $420,000 and buy outright the home her daughter’s family chose — and still leave at least an equal amount for their other daughter. Savu owns the property, and her daughter and son-in-law pay a well-below-market rent into a dedicated account to cover taxes, insurance and maintenance.
Savu’s daughter will inherit the home, as well as whatever is left in the rent account, when Savu has passed on. Meanwhile, the house is much bigger and nicer than one her daughter would have been able to afford on her own.
“It makes me feel good to be able to do this for her,” Savu says. “You always hear about people buying and holding. But you have to have an exit strategy if you want your investments to have an impact,” she says.
STRATEGY: Diversify beyond company stock.
Myles: Invest in interests to fund entrepreneurial goals
Myles Gage, 30, says he was a “sneakerhead” during his later years as a student at the Ariel Community Academy, a K–8 public school on the south side of Chicago. He loved learning about finance at the school, which was cofounded by the mutual fund company Ariel Investments. He joined the junior board of directors of the school’s investment club, which manages a portfolio of $20,000 for each class year. At year-end, the graduating students divide half of the fund’s profits among them.
When Gage was 12, to get him thinking about his future and build a college tuition fund, his mother made him combine his two passions: Whenever he spent money saved up from birthdays to buy a new pair of Nikes, he had to buy a share of the company’s stock, too.
He was soon buying Apple shares because he loved his iPod. And he bought a few shares in other firms he admired, such as Tesla, and companies he thought served crucial functions, such as healthcare company Johnson & Johnson. Gage, who got to meet Warren Buffett as a kid, says, “I was following Warren Buffett’s advice: Own businesses of quality, that you spend your own money with, that you would want to own forever.”
Scholarships and loans paid for his finance degree from the University of Illinois, so Gage rededicated his investment fund to support an entrepreneurial dream. He and a friend wanted to start a company that would help youngsters learn about finance.
In early 2019, just before his 25th birthday, Gage quit his day job as a banker and started using his investment fund to pay his living expenses while he helped build the business. He liquidated almost all of his portfolio, by then worth $45,000. He figures he put in about $8,000 into the portfolio, and he says it benefited from especially strong returns from Nike, Apple, Tesla and Johnson & Johnson.
Cashing in the stocks (and even selling some of his beloved collector Nikes) to invest in his business “was totally worth it,” he says. His company, Rapunzl, which sells personal finance curricula to schools and offers a free stock trading game app, is growing.
When he’s presenting an investing lesson to students, Gage likes to point to students wearing Nike shoes and say, “Thank you. You are paying me, because I own Nike stock.” That often makes an impact. “Once they understand they could be putting that money in their own pockets, a light goes on,” and they get enthusiastic about investing, he says — just like he did.
STRATEGY: Buy what you know.
Michael: Save for children's tuition
When his older daughter was six years old, Michael Hirsch, now 51, decided it was time to start saving for her and her sister’s college expenses. Though he was living in Southern California at the time, his fee-only financial adviser, Delia Fernandez, recommended that Hirsch start a tax-advantaged 529 college-savings account with Nebraska’s NEST program because it offers low-fee options managed by respected fund managers such as Vanguard. (Parents can use the money from any state’s 529 to pay for any accredited college.)
To make sure they reached their goal, Hirsch and his wife automated their investing as much as possible. They set up twice-monthly automatic withdrawals from their checking account. And they chose age-based funds that would automatically rebalance and transition to safer investments as each child’s college enrollment date neared.
As that time approached for their elder daughter, Fernandez pointed out that Hirsch had built up enough in other liquid savings that he could afford to take more risks with his college fund, in hopes of realizing a little extra growth. The Hirsches increased the 529’s stock allocation, shifting money into Vanguard stock index funds. With the regular contributions and extra deposits from bonuses or other windfalls, Hirsch says he has contributed about $80,000 for each girl. The accounts’ combined total peaked at about $215,000 before withdrawals began.
With scholarships, his daughters’ summer jobs and the 529s, Hirsch figures they can now fully fund both daughters’ college expenses — especially since his youngest daughter expects to attend an in-state public school in their new home state of Washington. Setting aside that money early on “did hurt at first,” Hirsch says. “But when you don’t have that money in your account, you don’t even think about it after a while.”
And it has been worth it. “My university experience was so important to shaping who I am today, and the same was true for my wife,” Hirsch says. “Knowing that we are able to provide that foundational and impactful experience for our kids means everything to us.”
STRATEGY: Make saving automatic.
Mike: Build a portfolio for retirement
For the first 35 years of his working life as an attorney and Washington, D.C., lobbyist Mike House, 78, funneled his retirement savings into what he thought were safe bond funds in a Fidelity account. “I am very conservative in my investing outlook,” he says. “I thought the money was really safe in bonds.”
But as he and his wife, Gina Rigby-House, started to plan for retirement, House began to realize how paltry the returns on the bonds were. He feared he might not be on track to do the kind of traveling and charitable activities he had hoped to do in retirement. So House sought the help of a financial adviser. “I know how to do my job and make money. I don’t know how to invest money,” he says.
A business associate recommended Ted Shanahan, founder of Blueprint Financial Group in Reston, Va. Shanahan explained that House was so focused on ensuring the return of his principal that his investments had exposed him to other risks, especially the loss of buying power due to inflation.
It took some persuading, but eventually Shanahan maneuvered House’s portfolio into a well-diversified basket of investments that has ranged between 60% and 70% stocks. The new portfolio averages an annual return of more than 6% — more than double the return on House’s original bond portfolio.
House, semiretired for five years, now has an eight-figure net worth that enables him and his wife to follow their passions. He still does some consulting, but the couple are preparing to move back to their home state of Alabama.
Their investments give them the time to do volunteer work for their alma mater, the University of Alabama law school, and enable them to afford frequent trips to see family across the country as well as some bucket-list European vacations. Says House, “It’s a lot of fun.”
STRATEGY: Consult a pro.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
