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January 11, 2021

Invest Sooner Rather than Later: Start Today

We are all familiar with the advice from financial experts: start investing and saving as early as possible. This idea sounds good in theory, but actually acting on it is the hard part. Between college debt, the expenses of starting a family, and the countless other unexpected costs that seem to crop up every month, putting money away for the future often just doesn’t happen.  

The truth is, though, when you start saving and investing at a young age with the help of a great Charleston financial advisor, you begin to form a healthy pattern that sets you up for financial stability and success in the future. It’s worth the effort it takes to incorporate saving into your regular budget, and it may not be as difficult as it seems, especially under the guidance of a Charleston financial advisor who understands your situation.

The chart shown above demonstrates threeindividuals with different investment patterns.

Although Susan, Bill and Chris all invest $5,000 annually, they each end up with vastly different amounts at age 65.  This chart proves that time is everything when it comes to saving. Notice Susan, Bill and Chris invest for 10, 30, and 40-year spans, respectively.

Chris experiences the greatest return (dark blue line), then Susan (dotted black line), while Bill faces the lowest return (light blue line). Susan and Chris experience the same growth rate from age 25-35 (shown by the dark blue line).

However, Susan’s investment begins to grow at a slower rate than Chris’ investment (hence the flattening of the dotted curve) because she stops making additional investments at age 35.  Susan ends up with about $600,000 at age 65, which is a great return on her $50,000 investment made earlier in her life.  Chris continues investing $5,000 annually through age 65, and an impressive return of nearly $1,200,000 is the result. Had Susan known she could have reached retirement with $1,200,000 like Chris, she probably would have continued investing.  

Bill waited until age 35 to begin investing and did so until age 65. In comparison to the other two, his return was $500,000 at age 65 after investing $150,000 over a 30-year span.  This number contrasts with Chris’ return, even though the only difference in their investments is that Bill began investing at age 35 and Chris started at age 25.

Are you surprised that 10 years makes such a difference in the final outcome to these saving strategies?

The reason for the different outcomes is simple: compound interest, otherwise known as “interest on interest.” The concept is surprising to those who aren’t familiar with it, or who have forgotten about it since they learned about it in an economics class. The summary of the concept is your initial investment earns interest, and this interest compounds and has a “snowball” effect on your total savings. That is, as your investment accrues interest, that interest is reinvested and earns additional interest on top of itself.

In application to Susan, Bill, and Chris, the two who invested at a younger age earned more in the long run because their money compounded over longer periods of time.  

It’s never too early and never too late to start investing. It is hard to know where or how to begin investing, and Twenty Fifty Capital is here to help. We offer a personalized approach in developing a strategy to fit your goals and needs. Whether you’ve been investing since college or you’re finally deciding it’s time to put money away for retirement, your Charleston financial advisor will help you make the most of your investment.

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