More Straight Talk on Investing

4Save More—Without Feeling the Pinch

My father was a banker, so he taught me at a young age about the importance of saving money. As a boy, I chipped in some of my lunch money to a savings program at school, and when I earned a few dollars here and there by doing chores, I put that money into an interest-bearing bank account. This was my experience with saving when I entered the investment management business in 1982.

I soon had a great revelation. One day, an older acquaintance who had a sizable account at Vanguard called to ask for help with a transaction. He wanted to move money from his daughter's account to the bank so she could buy a home. When I looked up her account, I was dumbfounded to see that this individual who was my age (under 30) had a six-figure balance. When I commented on it, her father explained matter-of-factly that he'd been investing $50 a month on her behalf in one of Vanguard's stock funds ever since she was born.

It was amazing to see how a modest amount of money, invested with discipline and in an effective vehicle, could grow to such a large sum in less than 30 years. It was a powerful, tangible manifestation of the rewards of disciplined saving and the power of investing in the financial markets. I regularly relay this anecdote to young people who are just beginning their careers or starting families in hopes that it will inspire them as it did me.

In this chapter, I'll discuss how to transform yourself into a disciplined saver and how to make intelligent, ...