Wednesday, October 12, 2016

Time: Your Most Important Investment Tool

I've been fortunate enough to be featured in many different financial articles lately and a common question when being asked for my opinion is, what's an investor's most valuable tool? To which I always respond with the same one word answer: time.
Time is the most precious finite asset we have as human beings and time is undoubtedly an investor's most important tool to leverage when it comes to: saving for retirement, a new home purchase, or any other major life event for that matter. While I started investing at a very young age, I didn't start saving for retirement until my mid twenties. While this may seem early to any baby boomer readers, this is in fact considered late by today's standards. So, why is time more important than things like; asset allocation, investment selection, technology and more? Because time, unlike money, technology, and new investments is irreplaceable. By using a simple interest rate calculator online you can see just how valuable the concept of time can be in real dollars. For example, I conducted a basic compound interest example where you put away $5,000 a year for 25 years earning a very modest 5% annual interest rate (modest considering the S&P 500 has averaged close to 10% over its lifetime). That $5,000 each year earning just 5% on average will give you $267,499 by the 25th year. That's over a quarter of a million dollars saved in 25 years and you're only putting away $5K a year! However, if you take only one year away and save for 24 years, your return quickly falls below that $250k threshold. The greatest part about the initial example is that interest makes up a whopping $137,499 of that total amount. That's more than you contributed yourself, but none of this could even be possible without the time allowed for this investment to grow.
Examples such as these are evidence of how important the concept of time is especially when it relates investing. While I always advocate people start early I also reassure clients that it's never too late either. Older clients may feel that they've missed the boat but I've helped clients in their sixties make minor adjustments that allow them to take advantage of the time they still have even if that time is in their retirement. I do hope that this post was able to highlight the importance of this asset. If you're interested in hearing what specific investment solutions I use to maximize the effect time has on retirement savings I invite you to reach out to me via email at Mcirelli@saifinancial.com or by phone at 630-221-1112.
Invest Long & Prosper






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