What is the best long-term investment strategy if you’re starting with a small capital?

What is the best long-term investment strategy if you’re starting with a small capital?

Starting out big or starting out small, the answer isn’t all that different. Most people are better off investing their hard-earned money in index funds.

Based on high fees and subpar performance from professional money managers, Warren Buffett suggests that most everyone is better off in index funds:

When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.

Buffett speaks negatively about the way marketers treat potential clients:

Investors are duped by slick managed-fund marketing, they don’t know the facts or they believe “you get what you pay for” — that paying higher active-management fees should buy better results. Maybe they are deferential to “professionals,” or believe they are smart enough to pick the active managers who are better than average. All those explanations have one thing in common: They assume investors are not very bright.

There are numerous low-cost index fund options available at most larger brokers like Vanguard, Schwab, Fidelity, etc.

Invest as much as you can, as often as you can. Over time, you will likely see your money grow, and you will probably out-perform professional money managers as well.

The S&P 500 has returned 9.7% (including dividends) over the past 50 years. Assuming that rate of return, that initial $10K investment would be worth $160K after 30 years, and thanks to the magic of investing, after 40 years that money would grow to over $400K. That’s just your initial $10K. Imagine if you added an additional $10K every year.

After 30 years, you would have over $1.8 million, and that would grow to over $4.8 million after 40 years.

Of course, past performance is no guarantee of future results…

Best of luck.

[1][2][3]

Footnotes

[1] http://www.berkshirehathaway.com…

[2] Do you really think you can beat the market? Warren Buffett thinks you can’t, but don’t need to – Dollar Bits

[3] If you invested $1.50 the last time the Cubs won – Dollar Bits

Image credit: Flickr/amanda

What is the best long-term investment strategy if you’re starting with a small capital?

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