Start Investing Now? Uh, Yeah

Take advantage of one of your greatest assets: time.

Washington, D.C., where I live, is a “So, what do you do?” kind of town—no conversation at a party is complete until someone details his or her résumé. When I tell people that I write about investing, I usually end the conversation with a friendly, “Let me know if you ever need help with your 401(k).” An alarming number of people in my age group (I’m 27) say, “Yeah, I should probably get on that, huh?” Uh, yeah. You really should.

If you are procrastinating, you’re not alone. In a recent study from Ally Bank, 61% of Americans said they found investing scary or intimidating, and more than half said they planned to invest, or invest more, in the stock market—“but not right now.” Among respondents, millennials were most likely to report feeling intimidated, and their biggest fear was losing money on investments.Why so much angst? We’re the generation that came of age during the worst financial crisis since the Great Depression. We watched markets implode and the economy follow suit, shrinking our post-college job options in the process. As the bull market approaches its 10th year, we know another downturn is lurking somewhere around the corner.

Invest Early and Often

The recent market peaks seem like the top of a cliff. But here’s the thing. Every second you wait to take the leap, you’re giving up one of your greatest assets as an investor: time. “The further from retirement you are, the more time your assets have to recover from big losses,” says Dave Nash, a certified financial planner in San Antonio. Generally, he says, that gives you leeway to take a little more risk with your investments for a potentially bigger reward. And the earlier you invest, the more time there is for compound interest to work its magic. You’ll hear a lot about the “magic” of compounding from financial planners (and this magazine). And sure, it can feel magical. But it’s just math.

So let’s crunch some numbers. Say one of my fellow 27-year-olds starts contributing $100 per month toward retirement and earns a return of 8% per year. She would have $350,000 by age 67. Not bad, but had she started five years earlier, she would retire with nearly $530,000. As a young person, time is on your side.

What if you were the unluckiest investor in the world and you invested in a broad stock market index fund at the very top of the market in October 2007—just before stocks, as measured by that index and including dividends, tumbled 55.3%? If you hadn’t touched your money from then until now, you’d have earned 7.6% per year, on average, on your initial investment, for a total gain of 111.1%. You’d have more than doubled your money.

A quick-and-dirty calculation to keep in mind, says Nash, is the rule of 72. To find how long it will take your money to double, divide your portfolio’s rate of return into 72. Even if you earn a conservative 6%, your money will double about every 12 years. Boost that to 10% (the average return for stock portfolios dating back to 1926), and you’ll double your investment about every seven years.Still, you may ask, wouldn’t it be better to wait to invest until stock prices are lower? Sure, theoretically, but good luck guessing when that’s going to happen. “If it was easy to time the market and know which asset classes will outperform, then we’d all be millionaires,” says Elaine Lee, a CFP in Summit, N.J. You’re better off diversifying your investment dollars among various asset classes, such as stocks, bonds and cash, to ensure your eggs aren’t all in one basket. A strategy known as dollar-cost averaging takes the emotion out of timing your investments. Rather than fret over what the market is doing, you invest, say, the same portion of each paycheck in your 401(k). You’ll buy more shares when prices are low and fewer when they’re high, driving down the average price you pay per share.

Most Popular

Dying Careers You May Want to Steer Clear Of

Dying Careers You May Want to Steer Clear Of

It’s tough to change, but your job could depend on it. Be flexible in your career goals – and talk with your kids about their own aspirations, because…
September 13, 2021
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
7 Best Commodity Stocks to Play the Coming Boom

7 Best Commodity Stocks to Play the Coming Boom

These seven commodity stocks are poised to take advantage of a unique confluence of events. Just mind the volatility.
September 8, 2021


These 2 Emotional Biases Could Kill Your Retirement
Investor Psychology

These 2 Emotional Biases Could Kill Your Retirement

Are your emotions sabotaging your retirement plans? Some basic knowledge and careful introspection can go a long way toward avoiding major pitfalls.
September 20, 2021
Investment Strategies for the 4 Stages of the Economic Cycle

Investment Strategies for the 4 Stages of the Economic Cycle

The U.S. economy is cyclical in nature, surging ahead and pulling back in waves over time. Investors’ portfolios need to change with the rise and the …
September 19, 2021
How Exactly Do You Stress-Test Your Financial Plan?
retirement planning

How Exactly Do You Stress-Test Your Financial Plan?

Some tasks are not good for DIYers, and stress-testing your portfolio is probably one of them. Because individuals don’t have access to the same tools…
September 18, 2021
The Downside of Delaying RMDs
required minimum distributions (RMDs)

The Downside of Delaying RMDs

With the SECURE Act 2.0, Congress is contemplating raising the age for required minimum distributions. However, don't assume you would benefit from th…
September 16, 2021