How do you start your day?
Photo: Viktor Hanacek. Source: Picjumbo
I like to cook up a batch of oatmeal, when I have the time. Some fruit, milk, and a little sweetener make it very filling and nutritious. Doctors tell us that it’s important to have breakfast, to replenish our body’s store of energy and nutrients, to keep from getting hungry later and overeating. The important thing is to get started, to begin your day well.
It’s the same thing with investing. It’s critical that start saving as early as possible. If you save $1,000 per year starting at age 25, you’ll have put aside $45,000 by the time you’re seventy. But if it grows at 8% — the average stock market growth rate – it will be ten times that value, $450,000. But if you wait just 10 years – until you’re settled, have your student loans paid off, have a dependable job – you’ll have less set aside, and it will only grow 5 ½ times as large. Compound interest simply doesn’t have has much time to work if we get started later.
That doesn’t mean we should give up if we don’t begin saving when we’re in high school. (Actually, that’s almost impossible, the way colleges penalize savings when you’re younger, but that’s a different subject). It just means we have to set aside more. If we start saving at age 35, we’ll have to set aside more than twice as much to reach the same savings goal. And if we start at age 45, we have to save more than five times as much. Starting later doesn’t mean we should just give up. We just have to save more.
Cumulative savings at 8%, setting aside $1,000 / year.
Our bodies need fuel to get going in the morning, and our retirement accounts need savings to provide for us later in life. Einstein called compound interest the eighth wonder of the world. But it takes time to work.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”