Why You Should Invest For Retirement In Your Twenties
Most people don’t start saving for retirement until they are in their fifties. They wait, and they can always find excuses to put it off for another year. My kids need to go to college, there’s a new baby, I need a new car. All these things are always going to exist – you could come up with a never-ending chain of excuses not to invest. But the smart investors will do it young – and here’s why.
The reason not to wait until you are in your fifties is because of a simple principle called “compounding.” Investing a small amount now will get you a larger amount later because you earn interest on the interest that you’ve already made. It’s like a snowball effect – as more money gets added to your portfolio, you make even more money in the next year. That means that the longer a time over which you’re investing, the more money you will end up with, even if you put in the same amount as a person who invests only in their fifties. The results can be dramatic over a forty-year period, and you often only have to put in about a quarter to half as much into your retirement accounts to get the same amount as a person who waits. So start investing when you’re young. You’ll develop the right financial habits and you’ll end up with a healthy retirement fund, at a lot cheaper cost than the rest of us.
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