YOUR GREATEST ASSET
SUMMARY
Many people focus on their incomes as a gauge of how well-off they will be in retirement, but there is an even more important and often overlooked factor, everyone’s most precious commodity: time.
THEY AREN’T MAKING MORE OF IT
If you ask just about any teenager (well, at least the three I interviewed) what they want more of, you’re going to get a pretty obvious answer: money. While I doubt that they listen much to the things I say as an “old person” at the wizened age of thirty, there is one thing I do try to impress on them: money can be a great ally, but time is your indispensable best friend. At their core, people—especially those who are “old” or “really old” in the parlance of my niece and nephews—understand that time is fleeting. I’m not going to wax poetic on how you should spend your time—I’m a financial planner, Jim, not a psychologist—but I will say that when it comes to money, the more time you have to save, the better. When you factor in compounding, you’re talking a whole new world.
Many people understand compounding, or have at least heard of how important it is to your finances. Your earnings, reinvested, generate additional earnings over time. So, if your $100 is up 10%, you’re up $10. But if your new $110 is up 10% again, you’re up $11. It’s a beautiful thing.
Compounding relies on the passage of time. Time is the only commodity we can’t buy more of no matter our net worth (we’ll leave obscure and experimental medical treatments out of the equation for now). Like land—at least of the non-volcanic variety—they aren’t making more of it. Compounding is not a complicated enough concept to warrant a definitive article, perhaps, but I wanted to walk through an example using hard numbers. What might you be leaving on the table?
If you’re an “old person” like me, apparently, this isn’t meant to scare or convict you. On the contrary, perhaps it might inspire you to do just a little more to reach your goals or impart the wisdom of leveraging time to some young’un who still has lots of it. Starting late—if there is such a thing—is better than never starting, and everyone’s life, opportunities, and goals look different.
THIS SIMPLE TRICK CAN GROW YOUR MONEY! (BUT REALLY)
The only certainties in life are death and taxes. The rest is a game of probabilities. While you can’t be certain what the value of your investments will be at any given point in time, chances are you will be better off if you start investing early.
Using a purely mathematical example, Sara Saver invests $50 at the beginning of each month starting at age thirty. Assuming an average rate of return of 7% over the course of thirty years, her portfolio at age sixty would be somewhere around $61,354 ($18,000 of principal). If Sara had started just five years earlier and contributed until age sixty, that value would be $90,578 ($21,000 of principal). That’s 17% more principal for an almost 48% increase. If she waits until age fifty to start her monthly contributions but wants the same amount at age sixty, she would have to invest $520 every month—a whopping $62,400 of principal. And if she decides to start at age twenty-five but only contribute for thirty years instead of thirty-five ($18,000 of principal), she’ll still end up with $86,977 by age sixty, a 42% increase over what she would have if she started at age 30 with the same investment schedule and amount of principal. Starting five years earlier earns her over $25,000 more. Time, even more than the full amount of her contributions, is what makes the difference.
| Age Started |
Investment Amount |
Total Principal |
# of Years |
Average Return |
Total at Age 60 |
|---|---|---|---|---|---|
| 30 | $50/month | $18,000 | 30 | 7% | $61,354 |
| 25 | $50/month | $21,000 | 35 | 7% | $90,578 |
| 50 | $520/month | $62,400 | 10 | 7% | $90,578 |
| 25 | $50/month | $18,000 | 30 | 7% | $86,977 |
Now, what happens if you put away a big chunk of money at the start for many years, without adding to it at all? Say Sara decides she would rather invest $5,000 as soon as she turns thirty, and she doesn’t touch it until she’s sixty. Using an average, compounded rate of return of 7%, she’s looking at $40,582. If she waits until age fifty to put money aside and wants the same resulting amount, she would have to invest $20,193 up front!
| Age Started |
Investment Amount |
Total Principal |
# of Years |
Average Return |
Total at Age 60 |
|---|---|---|---|---|---|
| 30 | $5,000 up front | $5,000 | 30 | 7% | $40,582 |
| 50 | $20,193 up front | $20,193 | 10 | 7% | $40,581 |
You can pick any age against which to compare the numbers, but the point stands: the sooner you invest, the more likely you are to accomplish your financial goals.
A BALANCING ACT
I’m fresh out of my twenties. I know what it’s like to not be able to afford to throw gobs of money at a nebulous idea like retirement, especially when bills come calling. Going to school, starting a family, and establishing a household take priority when it comes to the wallet, as they should, and we all have to get out and enjoy our life. You’re not always going to have $50 to sock away every month, and sometimes it feels like it might be better if you just wait until you’re “making enough” to put something aside. After all, there is no guarantee of performance, and we’ve seen enough declines to know that growth is not a straight line. Nonetheless, I hope the illustrations show you why even investing some money sooner than later can yield pretty stunning results. Leverage the time you have to open a world of new opportunities for yourself—or for the member of the next generation you’re bringing up.
Interested in seeing where you can save a bit more? Give the team at Day Hagan a call—we’re happy to do a cash flow analysis with you and discuss financial tips and strategies.
Best,
Natalie Brown, CFP®
Director of Client Services
Day Hagan Private Wealth
—Written 8.23.2021.
Print PDF Copy of the Article: Day Hagan Private Wealth Insights: Your Greatest Asset (pdf)
Disclosure: The data and analysis contained herein are provided “as is” and without warranty of any kind, either express or implied. Day Hagan Private Wealth (DHPW), any of its affiliates or employees, or any third-party data provider, shall not have any liability for any loss sustained by anyone who has relied on the information contained in any Day Hagan Private Wealth literature or marketing materials. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before investing. DHPW accounts that DHPW or its affiliated companies manage, or their respective shareholders, directors, officers and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors.
Investment advisory services offered through Donald L. Hagan, LLC, a SEC registered investment advisory firm. Accounts held at Raymond James and Associates, Inc. (member FINRA, SIPC) and Charles Schwab & Co., Inc. (member FINRA, SIPC). Day Hagan Asset Management and Day Hagan Private Wealth are both dbas of Donald L. Hagan, LLC. None of the entities listed here in this disclosure are affiliated.