Ever Gonna Retire? Learn this Phrase: "Diversified Portfolio of Low-Cost Index Funds"

This is well worth the watch, especially if you have an inkling that mutual funds are a screw job but can't get your head around the math.

Shortest possible version: Having and holding investments is a good strategy because your interest compounds over time[*]

Actively managed mutual funds charge fees (i.e., the "costs" in the title of this post). These fees--which seem really small, generally under 2%--*also compound.* Over 50 years, you'll loose 63% of your investment gains to fees.

That is not a typo. For real. A 2% load will eat up most of your earnings. Watch the video.

Most "financial advisors" have no legal obligation to give you the *best* advice, just *good enough* advice, and almost anything qualifies as "good enough." (This goes for workplace 401ks, too, which can be loaded with actively managed mutual funds and weird annuities and whatever.)

So, unless you really dig monkeying around with investing and market research and whatever--if you just want a set-and-forget plan--then you want to say "Please put me into a diversified portfolio of low-cost index funds" and keep repeating it until they stop trying to talk you into other things.

The Retirement Gamble | FRONTLINE | PBS

Watch The Retirement Gamble on PBS. See more from FRONTLINE.

[*] e.g., If I have $10 in an account with a 10% return, then next year (or over whatever the compounding period is) I'll have $11 in the account, and earn interest on that, so at the next cycle I'll have $12.10, then $13.31, and so on. If I never add a cent to that account for my whole working life, and just let it compound away on its own, I'll end up with $1700-ish--which will grow by $170 in the next year. Cool, right? I mean, you can't retire on it, but you only put $10 in; it's free money.

But the point of retirement savings isn't to drop in a lump and wait; you keep dribbling in a few hundro each month, and that gets rolled into the compounding sauce over time, and snowballs. For a more realistic example, if you start with zilch, save $200 per month in a vehicle that earns 7% annually (not outlandish; index funds regularly beat that), then you will retire a millionaire at 70 (FYI, you'll only have a half-mil at 60--remember, compounding interest is *magic*).