PostHeaderIcon Investment Strategy for Retirement (Part 1)

Certainly not too many people in their 20s are thinking about retirement. At this stage in your life, you’ve recently graduated from college and busy navigating your career to gain professional experience. Unfortunately, unlike your parents’ generation, employers no longer offer retirement pension plans. Nowadays, the burden is on you to invest in your own retirement funds. Forget about social security; by the time many people reach retirement age, monthly benefits would be reduced by 21% beginning year 2034 according to the Motley Fool. Thus, we definitely can’t rely on Uncle Sam to help us in our golden years. The U.S. government can’t even balance the country’s budget and currently, the national debt is almost $20 trillion. That’s a liability of $166K debt per tax payer according to US Debt Clock.

Therefore, the time to invest for retirement is now and it doesn’t matter whether you’re young, middle-age or perhaps even older. You should start now. Why the rush? Albert Einstein referred to compounding interest as “the greatest mathematical discovery of all time”. Simply, the longer you invest, the better chances of you beating the stock market because time is on your side. So, let’s look at examples from the 2014 “Guide to Retirement” from JP Morgan to showcase the power of compound interest, which we’ve previously elaborated in “The foundation of all investing – The Rule of 72”. In the JP Morgan case, we have three examples – Susan, Bill and Chris – each with $5,000 investment per year with a 7% annual rate of return, but each individual started at different age and various lengths of time.

 

In summarizing the chart, we have the following breakdown:

•Susan invests $5,000 per year from ages 25 to 35 for a total of 10 years.

•Bill invests $5,000 per year, but started late from ages 35 to 65 for a total of 30 years.

•Lastly, Chris invests $5,000 per year, but from ages 25 to 65 for a total of 40 years.

Chris invested the longest so he accumulated significantly more wealth than Susan or Bill. Surprisingly, Susan did substantially better than Bill despite investing for only 10 years. Investing at an early age gave Susan a huge advantage over Bill by benefiting from compound interest. So, don’t wait any further; start saving and investing for your retirement now. Remember that saving is the key to building wealth and the sooner, the better.

In the next article, we will be discussing the various types of retirement investments and strategies that you could implement in order to build wealth.

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D’ Intelligent investor is one of the first few updated value investing blogs in Asia and probably the only updated value investing blog in the Philippines where you can learn stock market investing through intelligent investing that makes business sense. The stock market investing strategies are very different from what most stock market players advocate. The strategies featured here are mainly value investing principles more specifically inclined with what are perceived to be Warren Buffett’s style of investing. Other value investing strategies by great value investors such as Benjamin Graham, Peter Lynch, John Boggle among others are also featured.