The most important ingredient in investing is, surprisingly, not money.
Money is certainly important, but when you look at how compounding interest works when you're investing, you'll quickly learn that time is everything.
Not timing, like when you try and decide the best time to buy or sell, but time, as in the amount of time we have. Time in the market is crucial when you’re invested, but this is also a lesson that applies to many things in life, sometimes painfully.
The preciousness of time is lingering in my head today, ever since my boyfriend woke me up with the announcement “The treasure was found.”
You see, we had been gearing up for a treasure hunt. One that was hidden in the Rockies and had an estimated value of $2 million worth of gold, jewels, and ancient artifacts. The treasure was hidden a decade ago by a man named Forrest Fenn, and he had released a book containing a poem, with clues to lead you to the treasure. My boyfriend had the books for a few years but really got into the hunt over the past few months. We spent hours working on clues, on Google Earth, and reading Fenn’s books, looking for more potential clues. When we were quarantined long-distance amidst the COVID-19 pandemic, Alabama to Michigan, it was a nice activity that we could do together while we were apart. We would video chat about clues, the secret meanings that could be interpreted, what other treasure hunters were thinking, why we disagreed with them, or thought they were on the right track. Three weeks ago he quit his job, and moved back home to Washington, with me a few days behind. We had 3 solid places in Yellowstone that we wanted to go search, and were planning a trip for next week.
I was pretty deep into it, and I thought our solves were solid. I thought that once we got out there, we had a great shot. And maybe we would have- if we would have gone out there earlier. Because just like that, we ran out of time. Someone beat us to it.
It’s easy to forget about time. It’s easy to blame feelings on things other than time. And once you realize that time was the problem- it’s easy to beat yourself up for it. The treasure had been hidden for ten years, with an estimated 350,000 people searching for it.
When you’re confident on your solve, have been getting all zen with yoga and meditation, (becoming the frequency of the treasure, as you do), and have a trip coming up literally next week, it’s easy to think “It’s remained hidden for this long because we are the ones meant to find it.”
Until the morning you wake up and see those sad blue eyes, and read the announcement on his phone, from Forrest Fenn himself, “The treasure has been found.”
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Having a Retirement Plan
Looks like I’m not retiring anytime soon, folks!
It’s a good thing I have a retirement plan outside of finding hidden treasure. It’s also a good thing I have time, being a millennial and having 39 years before the retirement age that Social Security deems appropriate (as of right now). These are two things that most people can’t say, at least from my experience. If you’re in the category of having a retirement plan, it’s likely you’re short on time. If you have a lot of time, you’re likely not even thinking about retirement.
When I first started working in the financial industry, as a receptionist for a small, independent wealth management firm, I believed many of the lies most of us tell ourselves about money and investing.
“I don’t have to worry about saving for retirement yet, I have time.”
“I don’t make enough to be investing right now.”
“I should pay off all of my student loans first.”
“My employer doesn’t offer a 401k, so I can’t save for retirement.”
“My employer doesn’t provide a match, so there really isn’t a point.”
“I need the money now, I’ll make more later and save more then.”
“I need to save up for a down payment first.”
“I want to pay off my mortgage before saving for retirement.”
“I need to be saving for my kids’ college, I can’t afford to be putting money away in my retirement accounts.”
Whenever I hear something like this, I smile sadly and nod. I know the feeling. I’ve been raised on those feelings, and it’s taken being fully immersed in an industry I knew nothing about to get me to see the importance of starting. Of starting when you’re young, starting when you’re poor, starting when you’re still in debt. This goes against what many professionals will tell you. But the truth is, if you’re feeling behind, and if you’re feeling like you don’t make enough, time is the best resource you have. If you feel too poor to invest now- you probably always will. Waiting rarely makes investing for a big goal easier because you are missing out on crucial years of compounding interest. And then one day you’ll wake up, and retirement is closer than it ever has been, or at least- it should be. At this point you’ll realize the importance of all of those retirement accounts you ignored over the years, you’ll probably finally ask HR about your companies 401k, or you might google what an IRA is. You might schedule a free consultation with a financial advisor, and learn that without anything in “qualified retirement accounts” (401k, 403b, 457) or other retirement accounts (Traditional, SEP or Roth IRA’s) or anything invested in a brokerage account- that they can’t really help you. That they will sit with you for an hour, and run a projection of the money you have, and they will show just how far into retirement that money could last. They might help you find your estimated Social Security benefit, which without savings, could be your sole source of income for the rest of your life. Then they'll show you the door.
You felt too poor to save for your entire life. Now you realize that the feeling will remain.
You might open a simple savings calculator, although most will probably just do some variation of burying their head in the sand, and continue ignoring the problem for a few more years. But if you did open a simple savings calculator, you would learn that just investing $50 a month for 40 years, earning an average of 8% interest, you could have over $175,000 dollars.
If you were able to save $100 a month, you could have over $350,000.
If you could put away $250 a month, you could have over $878,000.
If you just add 5 years onto your savings and invest $250 dollars a month for 45 years earning 8%, you would have over $1.3 million.
The problem is, we can’t add time. We can prolong our retirement by a few years sure, but even that isn’t guaranteed. What if a health issue comes up, meaning you can’t work? We don’t know what the future will bring, so it’s important that we use the most important tool- time- while we still have it.
Someone who is in their 40’s has less time before retiring. If they decided to start investing $250 a month, earning 8% for 25 years, they’d end up with $239,348. Waiting 20 years is a difference of over a million dollars, even though the difference in money actually contributed is only $60,000.
A $60,000 difference in contributions over the years, plus 20 years, turns into a $1,088,114 difference.
If someone wanted to retire with $1.3 million and had 25 years to save… they would have to put in $1400 a month to hit that goal, still assuming 8% growth.
If you’re in the mindset of “I can’t afford to invest yet.” I’d ask you to go to the calculator linked above, and ask yourself- can you afford to wait?
I learned the importance of investing and saving for retirement at the age of 25. I’ve seen hundreds of retirees and their life savings. Some were very impressive. Some were turned down because there was simply nothing there to manage. I’ve heard too many times to count “I only wish I had started sooner!”
My broke 25-year-old ass opened up my Roth IRA when I was making 30k a year and still had 30k in student loan debt. My philosophy was “As long as I can make my loan payments, plus a little extra, I can save for retirement.” Paying off my loans was still my primary goal, but I knew I couldn’t afford to wait any longer to begin saving for retirement. This meant saying no to a lot of things. I got really good at not buying new clothes. At not throwing any extras in the shopping basket. At shopping at Aldi, and seeing how little I could spend, sometimes just $20 a week. I got good at packing lunches. Over the three years of working in my office building, I only bought lunch twice, even though there was a cafe right downstairs. I said yes to extra money-making opportunities whenever I could. Dog sitting? Sure. Bartending an open house, even though I have no experience beyond mixing my own drinks? Absolutely! Waking up at 5 am to teach English to Chinese kids? Of course, I’ve been wanting to wake up earlier anyways! Even when I got my end-of-year bonuses, the most I had ever made at one time, I divided it equally into “student loan payment”, “Roth contribution” and “emergency fund”.
When you truly understand how important time is, you realize there’s no time to f--k around.
You also realize that by making sacrifices now, you’re making your future much easier. You open the possibilities of retiring early and creating a dream life for your retirement.
Yes, finding a treasure valued at $2 million would have been a lot easier. It would have been a fun shortcut and an amazing adventure. But the learning experience of being a financial advisor in my 20’s has taught me that time is everything. By learning this relatively young, and beginning my investing experience shortly after, I have the time to make my own treasure, and for that, I’m grateful.
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