Investing isn't only for the rich | Briefing v4.0

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One of the most common penultimate goals in life for most is to enjoy a comfortable retirement. This is generally ascertained by working during one’s primary adulthood to achieve moderate financial independence by a median target age of ~65. Being absolved of obligatory work, one is free to do as they please, spending more time with family, pursuing hobbies, passions, and playing a more integral role with children and grandchildren.

A 2018 survey showed nearly 40% of adults aged 55+ have less than $50k in retirement savings, or none at all. Gen X’ers (35-54) come in slightly higher at just under 45% with less than $50k in retirement savings, and 12.46% with none at all. Wildly, Millenials aged 18-34 (Gen Y) showed an overwhelming ~57% majority of the demographic with less than $10k in retirement savings, or none at all.

What’s the takeaway here? The general population is wildly unprepared for retirement. Why? Most people are not investing (and buying lottery tickets instead), or only begin making contributions much later in life, largely missing out on years (decades even) of compound interest. Where does this damaging, widespread inaction stem from?

One of the biggest causes is the misconception that investing is only for already-wealthy people. It’s no secret that money begets money, and the more capital one has, the more opportunities are available, and the easier it is to net proportionately higher returns. Sure, a 10% return on a $1,000 balance ($100) is only a fraction of the same 10% return on a $100,000 balance ($10,000).

However, that doesn’t mean investing with a smaller sum or modest monthly contributions still isn’t lucrative over time. The crucial point to keep in mind is investing is a long-term commitment, and annual returns of the benchmark S&P 500 index fund yields ~7-10% (yes, past bear markets included!) In fact, assuming you start a retirement investment fund in your twenties (earlier is better, of course), after 40 years and around the average age of retirement, you can expect your retirement portfolio to be worth significantly more than your principal investment.

Ex 1: From age 25 to 65 you contribute $500/month, totaling $240,000 over 40 years. When you factor in a conservative long-term annual investment return of 7%, your $240,000 investment grows and compounds to become worth ~$1.2 million! Compare that to dismal ~2-3% rates in even the highest rate savings accounts, CD’s, bonds, etc.

Ex 2: From age 25 to 65 you contribute $50/month, totaling $24,000 over 40 years. When you factor in a conservative long-term annual investment return of 7%, your $24,000 investment grows and compounds to become worth ~$123,000!

A 2015 Bankrate study shows 53% of people don’t invest because they claim they don’t have any spare money to invest whatsoever. For some unfortunate individuals, this may hold true, in which case this article on earning more vs cutting expenses should be a more immediate priority.

However, for a significant percentage of others claiming a lack of capital to invest even a modest amount each month; this shows a misalignment of priorities. Another popular sentiment of people who don’t invest is because they believe the little amount they could afford to contribute is too small to be effective.

When formulating one’s personal budget, monthly contributions should be baked into expected expenditures. Just as housing, utilities, health insurance, work commute, student loans, meals, gym membership, etc. make up your skeleton ‘maintenance’ budget, your 401k or IRA contribution(s) should be added to that list as well. Better yet, most investment platforms boast a passive “automatic contribution” function, in which X amount is automatically deducted from your bank account of choice and invested into your retirement portfolio. This not only ensures you consistently make your monthly contributions, but you don’t even need to remember to do it!

In addition to funding retirement, investing’s power extends to other branches of utility as well. Having a separate, standard investment account allows you to build a larger portfolio not counting your retirement fund. Why? Greater financial security, market investing tends to outperform savings accounts, bonds, CDs, allowing you to accrue wealth faster, opt for higher-performing sectors or companies at your discretion, and be able to leverage your portfolio balance as an asset while applying for a mortgage, business loans, etc.

A well-diversified investment portfolio will have positions in most sectors, industries, reserves, and hedges. When markets take a turn, your position in bonds, precious metals, industrials, foreign markets, or even a short position will help preserve your wealth.

Let’s not forget about dividends, of which most indices and many publicly-traded companies (Apple, Verizon, Coca Cola, AT&T, etc.) offer. Simply by purchasing and holding onto select stocks, shareholders like yourself benefit from quarterly dividend payouts based on how many shares you own. Over time, as you accumulate more shares and build your portfolio, this stream of passive income can become quite lucrative and contribute towards achieving financial freedom.

As the legendary Warren Buffett once said, “I made my first investment at age 11. I was wasting my time up until then.” So, what are you waiting for?