This is what I'm trying to teach my grands! Show this video to your teenagers. The miracle of compounding interest.

[MongoCT]

The 8 year plan is an interesting example but not realistic and certainly not what I'd encourage a young person to plan on. No one is going to, or should, quit contributing to their savings after 8 years.

I agree with having a life-long plan to invest, but I also recognize that investing can be halted due to life events. But resumed later when things improve.

That "8-year plan" could be a good motivator to get someone to start. Investing over 8 years will build muscle memory, and it's likely the investor will continue. Heck, the "Rule of 72" tells me that had I started actively investing at 28 instead of 35 I could possibly have over twice as much as I have today. Had I started another 7 years sooner, at 21, I'd possibly have welll over 4 times as much as I have today.

But I didn't. I was in the military during my 20s and early 30s and pay back then wasn't all that great and there was no TSP (a 401k for military folk). Back then the only tax deferred retirement investing I could do was a max of $2000 a year in a traditional IRA, and I did for each of four years before being transferred overseas. Since I was fairly uncertain and uneducated on investing, and as a result, afraid of market downturns, I parked it in a low return but very safe setup that has earned about 2% a year...for the past 40 years! I'm okay with that, as everything else I have in my 401k being in stocks. That IRA is my nugget of "diversification", lol.

"Saving" that $8000 at 2% return for the past 40 years with no further contributions? It has grown, quite safely, to about $18000.

Had I "invested" that same $8000 in something like the fund I mentioned in my earlier post that has an average 13% return a year since its inception in 1967? $8000 invested at 13%, even if only compounded annually, would have grown to about $1M. Compounded daily for 40 years it could have grown to about $1.4M.

Rough numbers. But I'm glad I edjumacated myself and started investing.

 

[Larry Caldwell]

I agree with having a life-long plan to invest, but I also recognize that investing can be halted due to life events. But resumed later when things improve.

That "8-year plan" could be a good motivator to get someone to start. Investing over 8 years will build muscle memory, and it's likely the investor will continue. Heck, the "Rule of 72" tells me that had I started actively investing at 28 instead of 35 I could possibly have over twice as much as I have today. Had I started another 7 years sooner, at 21, I'd possibly have welll over 4 times as much as I have today.

But I didn't. I was in the military during my 20s and early 30s and pay back then wasn't all that great and there was no TSP (a 401k for military folk). Back then the only tax deferred retirement investing I could do was a max of $2000 a year in a traditional IRA, and I did for each of four years before being transferred overseas. Since I was fairly uncertain and uneducated on investing, and as a result, afraid of market downturns, I parked it in a low return but very safe setup that has earned about 2% a year...for the past 40 years! I'm okay with that, as everything else I have in my 401k being in stocks. That IRA is my nugget of "diversification", lol.

"Saving" that $8000 at 2% return for the past 40 years with no further contributions? It has grown, quite safely, to about $18000.

Had I "invested" that same $8000 in something like the fund I mentioned in my earlier post that has an average 13% return a year since its inception in 1967? $8000 invested at 13%, even if only compounded annually, would have grown to about $1M. Compounded daily for 40 years it could have grown to about $1.4M.

Rough numbers. But I'm glad I edjumacated myself and started investing.

That $8000 in 1967 would have been $77,796.41 in 2024 dollars. You would have had to invest more than a full year's male median income, which was $7300 before taxes. I can see maybe squeezing $800 for investment with a lot of sacrifice. That would have been a full year's rent. Hindsight is not so rosy in detail. You would have done better to buy 10 shares of Berkshire Hathaway for $39 each. As you can see, measuring wealth in money is almost meaningless. The dollar has lost 83% of its value since 1967, and that is according to the CPI. Measured against the broader economy, the loss has been much greater.

 

[Fuddyduddy1952]

There are so many ways to look at it. In 1972 my wife and I each bought our first new car. Each about $3,600. Mine (Toyota Celica) after about 3 years sold it for $500, hers (Formula RA Firebird) is in the garage gathering dust with 27K miles). At the time we enjoyed them and hers is a CPI (now worth ?)...but at 13% today that would be just over $2.43M.
That doesn't even include insurance, taxes, maintenance and the $2.43M doesn't include taxable dividends and capital gains.
Just an interesting example.

 

[RSKY]

I couldn't see creating wealth by saving.
But I have created it by investing.

Investing? The markets will go up, they will go down, they will hold flat. But look at any long term chart and there is overall gain. Short term things can get ugly. Or magnificent.

I haven't done individual stocks in years. I can sort of say that "they wore me out" with the too much attention I gave them over time. Didn't need to, I just did. About 30 years ago I went to one managed mutual fund (Fidelity Contrafund) and a couple of "autopilot" index funds that covered the expanse of the market; small cap, mid cap, large cap and growth index funds.

........

The ups and the downs? I held on through the 35% market plunges, through the large market crashes. With all that noise, the doom and the gloom? I stayed fully invested. Typically the next year the market not just fully recovered that loss, but jumped well above it. If you don't sell, you don't lose. You simply have a blip on paper. Sometimes and uncomfortable blip. But still, a blip. If you're a smart guy, or a lucky guy, and sell at the right time and buy back in at the right time, bravo, you win big. But if you're off by one market day with your timing? You can take a paper blip and turn it into a real loss. You lock in a loss, that can hurt.

I just looked this up. Contrafund (not trying to be a shill) has been around since 1967. Since it's inception...for the past 58 years...it has an average annual return of 13.15%, over the last 10 years, it's averaged 17.26%. Not bad.

FCNTX Contrafund

A 13% a year return for 30 years. Through th 2000 tech bubble bursting. Through the 2008 real estate and banking colapse. Through the pandemic. through all that a 13% return per year. I'd say "sign me up", but I already am.

Bravo!! Great, a man after my own heart.

Invest for the future. Create generational wealth and teach your kids how to do so. Make a plan and stick to it. And DON'T PANIC when the market drops.

RSKY

 

[RSKY]

The 8 year plan is an interesting example but not realistic and certainly not what I'd encourage a young person to plan on. No one is going to, or should, quit contributing to their savings after 8 years.

Kids like simulators and software. Get them plugged into something that allows them to create scenarios and plug in their own numbers -- so they can see the end result at age xx. Lots of firms use eMoney software. If you can open a Fidelity account for them, they'll have access to Fidelity's version of planning tools called Fullview. They can plug in time horizon, account values, future savings, monthly spend (detailed or high-level), etc. They can view and track Net Worth, future account balances, and also use it to start organizing their information -- and their thinking -- about personal finances.

(I only mentioned Fidelity because having an account gets you access to these tools at no additional cost.)

My wife and daughters make fun of me and my spreadsheets but, you can learn a lot by using them. Fidelity is the company I also invest with. Their advisors seem to be much more knowledgeable than the other company's that I have tried to work with. Teaching about financial matters is something the parents will have to do because the schools sure won't. I have posted before about my 14 or 15 year old daughter sitting thru a presentation on investing by the local banks financial advisor. A few weeks later a teacher made a statement and my daughter corrected him saying, "That's not what my broker says!". His reply was, "YOU, have a broker?!". She then went on to repeat what the lady had in her presentation and the teacher was impressed.

RSKY

 

[Torvy]

My SIL works for fidelity. If he is an example of who they hire....yikes!

He has a degree in Psychology. All he knows about investing he learned at company training.

We've had enough family discussions to know he doesn't understand the words he's repeating. He's just good at memorizing for the tests.

Hopefully, fidelity has good scripts for them to read.

I shifted all of my investments out of there, even though one of my former employers paid for 'free' investment advice.

 

[MongoCT]

That $8000 in 1967 would have been $77,796.41 in 2024 dollars. You would have had to invest more than a full year's male median income, which was $7300 before taxes. I can see maybe squeezing $800 for investment with a lot of sacrifice. That would have been a full year's rent. Hindsight is not so rosy in detail. You would have done better to buy 10 shares of Berkshire Hathaway for $39 each. As you can see, measuring wealth in money is almost meaningless. The dollar has lost 83% of its value since 1967, and that is according to the CPI. Measured against the broader economy, the loss has been much greater.

Larry, perhaps I wasn't clear in my post. Let me try to clarify:

I didn't put that $8000 into an IRA back in 1967. I was in elementary school in 1967. The mutual fund that I'm now invested in has returned an average of over 13% since the mutual fund's inception, the mutual fund itself was started in 1967. I included that 1967 reference in the post to simply highlght that over time (nearly 60 years), on average, the fund (Fidelity Contrafund) as well as the stock market as a whole has gone up. And its upward movement has outpaced inflation. There have been short-term ups and downs for sure. But over the long haul, is has gone up.

I didn't put $2000 a year for four consecutive years into an IRA (for the total of $8000) until the mid-1980s, which was 40 years ago. I was still single back then and though on a modest military salary, I managed to save $167 a month on average to achieve that goal.

Regarding the dollar losing value? Inflation certainly has taken a toll ever since the dollar was decoupled from the gold standard. The only way I see to clearly outpace inflation is investing (in equities markets) versus saving (in cash-type saving vehicles).

 

[ultrarunner]

Many in my circle also or primarily invest in Real Estate… it too comes with market ups and downs and always a new younger group waiting in the wings with the desire to invest.

 

[CalG]

The only value of money is the use of it.

Having excess on your deathbed is not a success story.

 

[dougtrr2]

Investing is all well and good. But, I think the two points that need to be taught are:

Save (or invest) off the top, not what is left over.

More importantly, live within your means.

Those two principals have served my wife and I well. I was in the military for 20 years. For our first years we did not have any chips or soft drinks in the house, we could not afford it. Even a few years later we could only afford to go out for pizza once a month.


Doug in SW IA