An article from the Motley Fool has revealed one of the most important things to happen to him was that during a period in his late 20s, someone showed him a table that demonstrated how money grows over time. According to the piece, the experience really opened his eyes and helped him to realize how important it was to save and invest his money wisely. This is something a lot of folks could stand to learn right now, especially young people who seem to be absolutely clueless when it comes to how economics works on a personal level.
The Motley Fool then discusses how he’s revisiting the table now and it’s exposed him to what he refers to as the “phenomenon of compounded growth.”
Here’s a look at the table, which will show you how much money you could build up over time if you put away certain amounts, regularly, for long stretches of time:
Here are somethings Fool says to keep in mind concerning the table:
- You can obviously invest smaller or larger sums than the ones above, and over time you probably will. As you age and (ideally) earn more, you can sock away larger and larger sums — which can help you amass vaster sums more quickly.
- Your invested money might grow at a faster or slower rate than 8%. The S&P 500 has averaged returns of roughly 10% over long periods, but there are also plenty of periods with lower returns. (You might try to juice your returns by investing in some growth stocks — but that’s not a guaranteed strategy.)
Fool also points out the need for people to take a close look at how much more powerfully money grows in later years. He explains that this is a demonstration of how effective long term investing is. The huge dollar amounts come after several decades of investing and saving.
It’s also important to be investing effectively — not too conservatively, such as in low-yielding savings accounts, or too recklessly, such as in penny stocks. It’s hard to beat the stock market for long-term wealth building, and the simplest way to invest in stocks is just via low-fee index funds. An index fund invests in pretty much the same securities in the index it tracks — such as the S&P 500 — so it delivers close to the same returns.
Given how the stock market tends to grow and grow over decades, it’s hard to not make money if you keep plowing dollars into the stock market regularly over a long period. You do need to be diligent about it and not get discouraged and give up when the market slumps, as it does now and then.
However, not all people have a ton of time before they are set to retire. If you’re closer to retirement age and you don’t feel like you’ve saved enough money to take care of you and your family when that time rolls around, there are a few different things you can do.
The first, which you probably aren’t going to like all that much, is pushing back your retirement a few years. When you take this route, you’ll be able to save up more money and invest additional funds, not to mention what you’ve put back for retirement won’t have to be used to support you yet and thus it can keep growing bigger.
You might also aim to beef up your income as much as possible before retiring. Depending on how many years you have, you could work to earn a professional designation or certificate that could qualify you for higher-paying jobs. You might simply ask for a raiseat your current job, too — because such requests are granted more often than many people think. (It helps to deserve a raise, of course.) Taking on one or more side gigs for a while can also generate extra dollars that can be invested.
If you happen to be a young person just now starting out on your journey as an adult, this is the best time to learn about how to invest and ensure that you have prepared for your later years, so don’t be foolish and squander your money away. Learn to put these practical bits of wisdom into practice and you’ll have nothing to worry about when it’s time to hang up the proverbial spurs.