investing
intervals
A solid investment strategy is a very important
element in ensuring that an individual. s future
goals are met. A sure way to run into financial trouble during
retirement (or any major life event) is to ignore the need to
create and implement a wise financial plan well in
advance. With this in mind it is never to early
to begin investing. The earlier a person starts, the more benefit
he will gain from a powerful market force called, compound
interest.
Compound interest is money earned on an investment which
is reinvested and creates additional interest. Over a long
period of time this factor influences the total sum of money
in a significant way. Let. s take a look at a simple
example. EXAMPLE
A person invests $3,000 at age 25 and does not plan on
touching the money until age 65. The investment produces an
annual 10% rate of return during that time. At the end of year
1 the individual has earned $300 dollars of interest. This
money is reinvested along with the original amount. After year
2 the money ($3,300) has earned $330. Each year the interest
remains at 10%, yet the total continues to increase. At the
end of year 65 the total has grown to a respectable $135,778.
As you can imagine, this figure would be even larger if
additional investments were made during this time. Since there is such a strong correlation between compound interest
and principal growth, many people have wondered about
the proper relationship between children and investing. After
all, if longer investment periods equal larger totals,
then perhaps it. s in an individual. s best
advantage to start before reaching adulthood. In theory
this is true, however, children generally lack the funds and
knowledge necessary to make wise investment
decisions. This being said, there are a number of feasible
alternatives.
-
Parents or relatives can start an investment plan on
behalf of the child. As the child grows this can be used a
wonderful tool to teach them basic financial (and
investment) concepts.
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Many children receive savings funds and some receive
trust funds.These generally are not accessible until the
later teenage years.Teach your children basic principles and
prepare them (with your help) to invest a portion of the
money when it matures.
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When a child enters the teenage years and begins to
work, this would be a great time to set aside a small
portion of their earnings into an investment plan. Not only
would they be taking full advantage of compound interest,
but additionally they will be establishing a wise pattern of
behavior that will serve them well later in
life.
There is no magic age that a person must reach to begin investing. Likewise,
it is never to late to begin investing. If you
are reading this today and retirement is only a few short years
away don. t assume it is too late. Although you will
not be able to take full advantage of compound interest, nonetheless,
the sooner you start the more benefit you will receive.
So don. t delay, begin formulating an investment plan
today. |
