I recently sent out an email update to my investment clients to highlight on the recent market volatility (led by the intersection of the U.S tapering and the ill data from the developing markets/banks). Some of my clients, who are highly aware of what’s happening, sees & seized the opportunity to increase their holdings. Some others are a little concerned on the ups & downs of it all.
But at the end of the day, I believe we will all go back to basics.
This quote (grass and all) reminded me of an analogy that I read from before: Investing is like farming. If you sow a seed, you have got to give it time before the seed grows and bloom.
And this is it about investment. It takes time. It takes patience.
If you have invested in the STI at the peak in 1990 and have done absolutely nothing about it, your investment would still be up by almost 100% today.
On the same analogy, if you would like to harvest a crop in the fall, then we cannot sow the seeds in late summer and expect a good harvest.
And this is it for retirement. It is impossible to invest for retirement at 59 when you expect to retire at 60. Investing early for retirement -sowing the seeds early- means that you allow your seed the time to grow bigger and stronger- such that it can weather through storms and the market volatility even through your olden years.
I have shared examples of the impact of starting early. So, why not another one, just as a gentle reminder.
Let’s assume that two friends start their jobs at age 22
-Investing Early: Jane begins saving immediately. She saves $6,000 per year for 10 years, until when she is 32. She received an average of 8% annual return on her investment. By age 60, Jane has ~$809k. She invested a total of $60,000 into the portfolio.
-Investing Later: Julia, on the other hand, only started saving at the age of 32. She saves $6,000 per year for 28 years, until when she is 60. She also receives an average of 8% annual return on her investments. Julia invested $168,000 into her portfolio, but the value at age 60 was less than $620k.
Now, if we were to take into account inflation and time value of money, the result is still the same. by starting later, you consistently need to save a higher % of your income at every single point of your life.
So during volatile times like this, it’s back to the same old advice – hold tight, and watch the trodden grass regrow.
CFP, representing Financial Alliance 