Creating an effective investment strategy can seem like a daunting task. Stocks, bonds, commodities, currencies, US, international, futures, derivatives, long, short, margin, hedge funds, private equity, options, calls, puts, Monticarlo simulations, algorithms, econometric regression…It’s enough to make your head spin, or worse, induce paralysis. But there is one proven and simple way to build towards financial freedom and retirement: Start investing early. HSBS, a leading financial services firm, recently asked 16,000 retirees in 15 countries “What was the best financial advice you have ever received?” Almost three-quarters of the respondents answered: “To start saving for retirement at an early age."
Here’s an example of the power of time:
Two investors (Bill and Phil – both the same age), both save $5,000 a year, and experience 6 percent growth each year. Bill starts at age 23 saving $5,000 per year. Phil waits until he is 33 to start doing the same thing. So, for openers, Bill’s nest egg will always be $50,000 bigger than Phil’s at any given time. But the real advantage is that Bill has an extra 10 years of compounding under his belt.
How much do Bill and Phil have when they each reach age the “normal retirement age” of 67?
Bill has $1,063,718. Phil has $557,174.
This means that Bill has over $500, 000 more than Bill at the same age…but only contributed $50k more. An extra $50,000 invested 10 years earlier could mean more than a half a million dollars more by retirement.
Regardless of how young, or old you are, starting today -- or increasing your savings today -- will make a world of difference. Simple but powerful stuff.
When did you start saving for retirement? If you started saving at a young age, who inspired that decision?