Like a seed, growth takes time and patience. To find success in investing, you must sow a seed and be patient in letting it grow. At times, investors seek quick and easy returns on their investments. Risk, and the consequences of risk, is not always weighed appropriately in the decision making process. By understanding the process behind long-term investing, a mature and patient investor can avoid excess risk and become financially successful.
If a farmer would like a harvest in the fall to feed his family through the winter, he can not sow his seeds during late summer and expect sufficient results. Growth of a seed takes time and patience, but first it takes planning. Similar to farming, you must plan for your family’s financial needs. The earlier you plant your seeds by investing for retirement, the longer you have to utilize growth through compounding interest. If you wait too long before sowing your seeds or saving for your retirement goals, the more likely nature’s weather or volatility of the stock market will impact the success of your desired results.
Here is an example of the power of compounding interest:
- Two individuals graduate from college at the age of 22.
- Jack begins saving immediately. He saves $6,000 per year for 10 years and stops at the age of 32. He receives an 8% annual return on his investments.
- On the other hand, Michael does not begin saving until the age of 32. He saves $6,000 per year for 33 years, until the age of 65. He also receives an 8% annual return on his investments.
- At the age of 65, Jack has contributed $60,000 with a total portfolio value of $1,100,000. Michael has contributed $198,000 and only has $876,000 to show for it!
A mature investor finds long-term success, not by reading the daily financial headlines, but by being patient and sticking to the designed plan. A long-term investor is aware that volatility and bumps in the road will occur, as the plan has already anticipated these occurrences. Besides, every time the weather man predicts a storm, you do not see farmers rushing to dig up their planted seeds. Instead, farmers have patience and trust that the sun will shine and their crops will grow over time.
By planning ahead and saving early for your goals, you can avoid excess investment risk and undue stress later in life.
As Warren Buffett once said, “Someone’s sitting in the shade today, because someone planted a tree long ago.” It is never too late to start investing, but I suggest starting now. Please share this advice with your friends and family. If they want to enjoy the shade of the tree, they better plant the seed today!