A financial expert and bestselling author says for building wealth in the long term, 'average' is more than enough
- Ramit Sethi is the author of the New York Times bestseller, "I Will Teach You To Be Rich."
- Sethi said there's no reason to chase bigger-than-average returns in the stock market — an 8% average return is enough, especially when the alternative is not investing at all.
- His favorite investments are target date funds and index funds, two types of automatic and low-cost investments available through most retirement accounts.
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We spend much of our lives striving to be extraordinary in our pursuits, whether it be in relationships or at work.
But when it comes to building long-term wealth through investing, average is exactly what you should aim for, according to financial expert Ramit Sethi.
"Have you seen those ads around [New York] that say 'better-than-average'? It almost makes you feel bad if you're getting average [returns] or like, 'Who wants to be average?' but you actually should be average in investing," Sethi told Business Insider.
"You should just match the market because over the long term, the market returns typically about 8% — 8% is awesome, 8% is amazing. Eight percent lets you double your money every roughly, 10 years or so, right?" he said.
While returns are never guaranteed, any growth will be substantial when you consider the alternative: Too many people are paralyzed by the fear of risking their money that they avoid investing all together.
"By opening an investment account, you give yourself access to the biggest money-making vehicle in the history of the world: the stock market," Sethi wrote in the second edition of his bestselling book "I Will Teach You To Be Rich."
Sethi says the best and most reliable place to start investing is through your retirement accounts. "They're not sexy, they're not going to be in the news, but you don't want them there. You want your investments to be really simple. A target date fund is great, or a basket of index funds. That's how I would approach it," Sethi told Business Insider.
Target date funds automatically choose a blend of investments based on your age — the younger you are, the riskier the investments (more stocks). As you approach retirement age, they become more conservative (less stocks). Target date funds are generally low-cost and tax efficient, too, Sethi said, but you'll typically need at least $100 to $1,000 to get started.
Low-cost index funds are highly recommended by financial planners. As Sethi writes, they're literally designed to match the market while keeping costs extremely low, making them an "easy, efficient way to make a significant amount of money."
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