Why Investing Early Is the Key to Achieving Financial Goals

“Investing should be more like watching paint dry or watching grass grow.”
-Paul Samuelson, Nobel Laureate

For long-term investors, knowing the difference between what can and cannot be controlled is key to both financial success and peace of mind. Constructing and managing an appropriate portfolio, while making strategic and tactical allocations based on market opportunities, is often the best approach. However, while following markets and maintaining perspective on the economy is important, an even more fundamental key to success is simply to start saving early, stay invested, and remain focused on long-term financial goals.

However, staying financially disciplined has never been more challenging due to the volume of noise from the media and the financial services industry. It seems as if headlines bounce from one concern to the next every week. For inexperienced investors and financial professionals alike, this can often be overwhelming.

Staying invested throughout all that noise is critically important. Amazingly, a $1 stock investment almost a century ago would have grown to over $13,000 today despite the numerous challenges along the way. Even when invested in risk-free government bonds, the value of that dollar would have climbed to $98. In comparison, inflation has eroded the purchasing power of cash, with $17 now needed to buy what $1 used to.

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What's just as important, and fully within an investor's control, is when they begin to save and invest. For example, an initial $1,000 investment, compounded annually at 7%, can hypothetically grow to over $10,000 by age 65 if the investment is made at age 30. If it's instead made at age 35, only 5 years later, the investment will only grow to about $7,600. The accompanying chart shows this pattern across different ages and return assumptions, highlighting how significant a difference any delay can make.

Many of us receive access to a 401(k) plan as a benefit of our jobs. These qualified retirement savings plans allow employees to defer a portion of their paychecks into an investment account that will grow on a tax-deferred basis until they retire. These plans may even offer a matching contribution from the employer alongside the employee’s own contribution, further increasing the value of the benefit offered. As you can see, investing through these qualified retirement plans can be extremely lucrative over the course of your career.

The bottom line? While investors should understand and maintain perspective on the market and economic environment, it's equally important to invest early and stay invested through challenging times. History shows that this is the best way to achieve long-term financial goals.

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