Start investing early and regularly and compounded gains will provide financial security. Most people can achieve high wealth and retire as millionaires.
It is never too early to start investing for the future. With long retirements ordinary people need to retire as millionaires to maintain their lifestyle. By starting retirement investing early it is possible to build a million pound fund with surprisingly small regular savings and without using high-yield investments which are likely to be higher risk. The later one starts the harder it is but it is always worthwhile – it is never too late.
Start Retirement Investing Early to Enjoy Retirement with Financial Security
Unlike previous generations most people living in the developed world can expect a long and mostly healthy retirement. Previous generations did not really need pensions as they did not live long beyond the end of their working lives at, say, age 65. Now people look to retire at 60 or earlier and will frequently have 30 or more years of retirement. If that is to be comfortable and free of money worries then a significant sum of money is required.
In the UK (and elsewhere) with typical returns of 4-5% for a safe income a capital sum of over £500,000 is required to buy annuities to give a retirement income comparable to the average wage. The question then is how the average person can achieve that when occupational pensions are under pressure and in any case are not available to many?
Start Now to Make Savings and Investments Work; Create a Pension Plan
Due to the benefits of compounding, whether interest or capital growth and dividends, the earlier that investing starts the better. The ideal would be for parents and grandparents to put a sum into an investment account or child's trust fund for a newly baby – perhaps spend less on statement baby buggies and maximise the amount invested.
Assuming that after an initial £1,000 (or $ or €) doting grand-parents add a small additional amount at each birthday say £100 until the child starts work at age 23. At that point if the newly independent adult saves just £500 per year, just £42 per month, in their retirement investment account they should be able to retire at 60 with a retirement fund of over £1million. To achieve that assumes that they put the money in a simple low management cost tracker fund that follows one of the major UK or US stock market indices such as the FTSE100 or the Dow-Jones Industrial Average. Over the last half-century these have grown by the equivalent of 11% a year. That is without considering any dividends which may have been paid which could add another 1-2.5% per year.
There are many online internet resources to allow an investor to estimate the likely result of various strategies. Smart investors will examine the underlying assumptions and build their knowledge so that they are informed customers.
Compounding Gains and Minimising Costs over the Long Term is the Secret
That is the beauty of compounding which benefits investors and makes debt so difficult to reduce without pain. Coupled with using low cost investment methods gains can be increased significantly for investors who make the effort to understand the basics. They are not then in thrall to professional fund managers and advisers.
Small changes in returns make a huge difference. For example, if the child above achieved 12% (perhaps by reinvesting dividends) they would retire at 60 with almost £2million nearly double that at 11%. It is therefore important to keep management costs to a minimum and the simple tracker approach suggested is well within the capabilities of most people. Wait two years and the fund then becomes nearly £2.5miilion or over £3million at 64. All without using risky high-yield investments.
Be Patient and Take the Long View to Retire as a Millionaire
So it is always the right time to start or increase investing but it requires patience and time. The longer the period of investment the less volatile the average returns. Typically investors should be thinking in terms of at least five years and longer is better. As is shown above the real benefits come in the later years so patience really does pay.
However for those in debt, especially with credit cards, the scenario is different and the best investment return will come from clearing those debts.
First appeared on Suite101