Treading the waters of finance and retirement can often seem to be akin to navigating a minefield. Many see so many pitfalls and hazards that they choose not to invest altogether, because they’re afraid to lose it all or they’re just overwhelmed by the perceived complexity of personal finance. As a result, many never take the steps they need to take in order to achieve the financial independence that will make all the difference in their lives after retirement.
Complexity and the fear of ‘financial winter’ can be paralyzing, but there’s no reason there should be. There are so many tools and resources at your disposal that help make financial markets extremely accessible, whether that means investing in a 401(K), starting a more diversified portfolio of assets, or dabbling in a little trading yourself.
The truth is that there’s all the reason for you to start saving for your retirement today —not tomorrow or the day after, but today. Why? Because by not saving, and by not investing, you are losing out on more money by waiting than you stand to lose by taking a small risk and starting your retirement account.
This fact can be easily illustrated. Suppose we’re looking at three different people with three different approaches to their retirement.
If we assume that they earn an average rate of return of 7% — the average for the S&P 500 index between 1950 and 2009 —, then the growth of their respective retirement accounts will look like the graph below.
Despite saving the same exact amount as Johnny, Edward’s retirement investments will still have earned over half a million dollars more than Johnny by the time they reach the age of retirement. That’s a pretty substantial sum and it comes down to the power of compounding. Remember, you’re not earning interest on just the $5,000 you’re putting aside each year, your also earning 7% on all the interest payments you’re account has accrued so far.
Bottom line: the sooner you start investing, the greater the factor by which your initial investment will multiply over time.
Yet, a third of all Americans have saved nothing for retirement. What about the people who have an opportunity for an early start? According to survey research, three-quarters of all millennials have saved less than $10,000 and almost half have no savings whatsoever! How can this be? How can so many people be foregoing this spectacular source of wealth?
Fear is natural, but it shouldn’t hold you back — it should be what guides you forward. When the stock market crashed in late 2007, the people who came out on top were the ones who used it as an opportunity to invest more, not the ones who withdrew from the market altogether. Why is that? Because they understood that, despite the massive losses that happened as a result of the subprime lending crisis, once the market had reached bottom it had nowhere to go but up. They were able to create certainty out of uncertainty, and they were rewarded for their leadership. That success doesn’t need to be only theirs, though. It could be yours, as well.
Remember, if you don’t play the game, you can’t win.
Over the years, Tony has published a wealth of information and resources to help you plan your retirement, including two books: Money Master the Game and Unshakeable. In an effort to make these resources as accessible as possible, we’ve put together this handbook to retirement so that you too can enjoy financial independence.
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