Is Now the Right Time to Invest?
By Brett Sifling
In a recent survey of 1,519 Millennials, more than half expect to be millionaires at some point (TD Ameritrade). The same survey said that they expect to start saving for retirement at age 36, to retire by age 56. I believe they are out of touch with reality. They won’t have enough time.
As the head of the Get Invested program at Gerber Kawasaki, I work with a lot of first time investors and millennials. Being a first-time investor can be nerve-racking and often times people hesitate to put money into the market until it’s the, “right time.”
It’s now, because time always beats money.
The earlier you start investing, the longer your money has to grow. You’ll end up with a lot more money in the end because of compounding interest.
Don’t believe me? Let’s take a look at two individuals, Brett and Luke, who started contributing the maximum amount to an IRA account ($5,500 per year) at different points in their life. Brett started at age 25, while Luke waited and started at age 35. What is the cost of waiting 10 extra years?
For the rate of return we will be using 10%, compounded annually, which is the long-term average return for the S&P 500 according to historical records (Investopedia). As seen below, it took 31 years for Brett to hit $1,000,000 in assets. By age 66, Brett’s nest egg has grown to nearly $3,000,000. In this illustration, Brett did hit the millennial’s goal of being a millionaire, but the bad news is that retiring at age 56 with $1,000,000 is nearly impossible. If Brett wanted to retire at 56 and start withdrawing $150,000 per year ($59,250 in today’s purchasing power adjusted for 3% inflation) to live on, he’d be out of money by age 66.
Now, taking a look at Luke’s situation, who started investing the same amount of money 10 years later at age 35. By age 56, Luke had only built up about $392,000 in assets compared to Brett’s $1,000,000. Waiting 10 years to invest has already cost Luke nearly $600,000. However, the gap only widens as time goes on. By age 66, Luke only has around $1,100,000. He is now trailing Brett by $1,900,000.
Time truly does beat money. The cost of waiting to invest is astronomical, so #GetInvested sooner rather than later. If you don’t know where to start, feel free to give me a call or tweet me @BsiflingTrades. I’m here to be a resource for all of your financial planning and investing needs.
Brett Sifling is a Financial Advisor of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately $800 million in assets under management as of 7/04/18. This example is for illustrative purposes and not indicative of future results. This is a hypothetical example and is not representative of any specific situation. Your results will vary. Readers shouldn’t buy any investment without doing their own research to determine if the investments are suitable to their situation.