In fact, 68% of millennials aged 30 say they don’t own any stock or stock mutual funds according to a Bankrate’s Money Pulse Survey. One of the reasons for the reluctance according to the survey is your wariness to invest. Millennials, they say, came of age during an extremely difficult time to invest because your cohort spans the years 1980 to 2000. That means the oldest of you were just 28 when the financial crisis hit in 2008, which has made many wary to invest in the markets. That’s a shame because investment returns have been generally good over the past several years. Returns that may have come in handy for the years ahead as a number of headwinds may make it tougher for millennials saving for retirement. Tax reform, depopulation and historically low interest rates are some of the obstacles adding urgency to the need to start investing. Here’s how.
The earlier you start saving, the better the result thanks to the magic of compound growth. Compound growth is a key aspect of investing. With compound growth, you earn interest on the money you save and on the interest that money earns. You earn interest on interest. As long as you don’t withdraw any funds, over time, even a small amount can add up to big money. Let’s take a look at three compound growth scenarios:
- You put $25 a week ($1,300 a year) into an investment that earns 3% a year for 40 years. At the end of that time, you will have $100,489, thanks to the magic of compounding.
- If you invest $50 a week in an investment earning 3% a year for 40 years, you will have $200,977.
- If you invest $100 a week at 3% a year for 40 years, it will grow to $401,955.
This mechanism is flexible and can be approached from the other direction as well. For example: if you started at age 20, how much would you need to save each year to have $1 million at age 60, assuming a 3% return? Answer: $13,000. So, you see, saving – even a modest amount – can result in substantial savings over time.
Invest regularly It’s important to view investing as a process not a one-time event. By choosing a pre-determined time to invest – weekly, bi-weekly or monthly – you not only take the guesswork out of when to invest but you ‘pay yourself first’ as well. By setting up an automatic investment plan, you also protect yourself against buying too much of any investment when prices are high while ensuring you buy more when prices are low.
Invest for the long term Traders trade, investors invest. There’s a big difference between the two. Traders may hold stocks for days, hours or even minutes. That’s not investing. And certainly not for the long term. Saving for retirement is perhaps the most-cited reason for investing and for most of us that means long term.
Do yourself a favour and get invested!
Source: Dynamic Funds