TIME AND MONEY

As an investor, your two biggest allies are time and the rate of return on your investments. 

The more time you have to grow your investments, the faster and bigger those investments will grow.  This is the power of compounding.  Over time, your money does not grow linearly.  It grows exponentially.  Good investing is a get-rich-slow game. Invest the right way and let the time value of money go to work for you. 

But most people don’t pay attention to this powerful compounding effect.  If they did, they would fix their 401K or IRA accounts as quickly as possible.  The longer you wait to improve your investing results, the less money you will have in the future.  People should have a sense of urgency about fixing their retirement accounts.

Most people understand the concept of compounding and the benefits of getting higher returns on their investments, but most are not aware of how powerfully these two factors work together.  Increasing your investment returns over long periods of time provides a multiplier effect for growing your wealth. 

Let me show you a simple example.  A 35-year-old investor has $100,000 in an IRA account.  They currently follow the best advice from the investment services industry (asset allocation) by spreading their investments over large cap stocks, small cap stocks, international stocks and bonds.  They might use a Target Date fund, or they might pick the investments on their own.  In the long run, this strategy should produce an annual investment return of 6.5% - not bad but not great either.  Because of the compound effect, they will have 87% more money after 10 years, 252% more money after 20 years and 562% more money after 30 years. 

Now let’s look at how the compound effect works when we combine the impact of time with higher investment returns.  The same 35-year-old investor could produce annual investment returns of 9.5% per year if they simply invested all of their money in an S&P 500 index fund (the Warren Buffett strategy).  When we compare the results of getting 6.5% per year to 9.5% per year over time, the differences are amazing.  After 10 years, the better investor would have 1.3 times the amount of money.  After 20 years, they would have 1.7 times the amount of money and after 30 years, they would have 2.3 times the amount of money – an additional $860,000.

When the investment returns are even higher, the results are even more incredible.  Using our Market Signals investment system, people should generate average annual investment returns of 12.5% or more.  The multiplier effect generates 1.7 times more money at age 45, 3.0 times more money at age 55 and 5.2 times more money at age 65 ($3.4 million vs. $661,000).

Because of the compound factor of money and the multiplier effect of higher investment returns, you should start fixing your 401K or your IRA immediately.  The longer you wait the less money you will have to spend in retirement.  Waiting will cost you dearly.

Stay Disciplined My Friends,

Phil

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Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.