Phil Town got this email from Clif a few days ago and decided to post about it, since this question comes up pretty often: "Am I too old to get started investing with Rule #1?" Below is the letter [edited for length] and my response.
please, if you read this personally, i sincerely request your advice asap. i am 71 yrs old, i am single, i raised 4 children almost entirely by myself. i am a retired teacher college and senior advanced course high school - all 4 of my children have been to college. they all have jobs making more money than i ever did as a teacher, i did not save much- raising my little girl and getting her into college occupiued my 50's and 60's.
i dreamed of a useful and rewarding retirement which brings me to the ad i saw in the ny times last week for your "rule #1" book - i immediately went to borders and purhased it and read it and had -for a while a new hope that i might yet salvage a few years of the kind of retirement i dreamed of.
i retired with $100,000.00 saved and i have a pension and ss of roughly $20,000.00 per year which barely gets me by in this high cost area. i put the $100, 000.00 in a mutual fund -american funds- which in 4 and 1/2 years has earned me exactly #3,209.00 total.
after reading your book, with new found hope i withdrew all the money from the fund and now it sits in the bank waiting a decision be me, what to do with it, perhaps i was too impulsive but your book made me feel like a fool for having left it in a poor performing fund so long but other facts give me pause to wonder if my hopefullness is justified---it may be too late for me to make much headway with rule #1 even if i continue for the next five to seven years until i am 76 or 78 and still have a few years of a good retirement- admittedly scaled down, given most of your examples assume at least a 10 to 20 yr time frame.
i work out, and am generally healthy - so with good genes, good luck and plenty of discipline i may live another 15 to twenty years. in light of these facts what would you advise me to do with the $100,000.00 now sitting in the bank- was i too hasty in removing it from the fund and trusting to hope that by applying your rule for the next 5-7 years i might have a few years of what i had once dreamed of having or in all reality, given i have no extra income, is it probably too late. i would ideally want to leave at least the $100,000.00 to my kids even if they don't need it - protect my modest principal in other words.
i wish i had read your book when i was 50 yrs old and just beginning to raise my then 2 yr old baby girl - but now i have read your book and realize with luck and good living i might have ten to twanty years or more left and i want to do the smart thing even if its to only increase that money i have to leave my children for all the happiness they have given me.
appreciatively,
clif
Here's what I told Clif:
Okay, Clif. First, the markets aren't likely to run off and leave you wishing you'd stayed in. Warren Buffett predicted 17 years of sideways and he has 45 billion in cash right now... so you're doing what the great one is doing. Waiting for something worth buying at a great price.
Second, if you can make 15% on $100,000, Clif, you will double it twice in ten years. That means your $100,000 will become $200,000 in five years and then become $400,000 five years after that. At that point, you could start living quite well on 15% a year - 15% of $400,000 is $5000 a month averaged out. That would be yours to spend without touching the $400,000.
So the short answer is yes you can do this. You're Buffett's age and he's not retiring!
But the key is to not lose your money. The financial services industry wants you to believe that you can't invest it without losing it. But they are perfectly capable of losing 40% of it themselves over the next ten years. I truly think you are better off to learn how to pick a great business and then buy it when it's cheap and sell it back when it gets back to retail. And if you can follow the arrows, so much the better.
But, Clif, please start out with no money and practice with virtual tools, picking good businesses and then seeing how well you can follow the advice in my book. And never forget Rule #1.
The key, Clif, is predictability of the business. Remember that. Is the future predictable for this business? Are you certain? Then you go ahead.
So start with $0, practice for six months, see how you do. The go with $10,000. See how you do for 6 months. If you're going good - which means you didn't lose any of it - then up it again until you are managing your own money. One of my students started when she was 70 and she's doing about 25% a year and has all her retirement under her own management. And she says now her husband just leaves her alone!
You can do this. Never let anyone tell you you can't.
Now go play!
