I am often asked, "What is the most important ingredient to financial success?"
Many factors come into play, but without question, starting an investment plan as early as possible is paramount.
Time is not a renewable resource -- once it passes you cannot get it back. You can earn more income and try to save more aggressively, but without time, you won't be able to fully experience the power of compounding.
Let's take a close look at two investors.
Terri Tortoise begins investing as soon as she gets her first job. She starts with small $250 a month contributions, raising them by 3 percent a year and continues without fail until retirement 40 years later.
Harvey Hare decides to get his career going first and waits 20 years before beginning to save. He reasons he'll be able to make larger contributions then and more than catch up on his retirement fund. Harvey invests $750 a month, raising it 3 percent a year over the next 20 years.
Let's assume both have a properly diversified portfolio earning an 8 percent rate of return. Who will retire in style?
Over 40 years, Terri contributes $226,204, earning her $970,165 for a total accumulation of $1,196,369. Harvey invests $241,833 and earns $313,149 to total $554,982. It's very clear Harvey couldn't make up for his 20-year delay despite tripling Terri's initial contribution.
There is no substitute for time in the market. Terri will enjoy more than twice the retirement income with a smaller lifetime contribution.
I see real-life examples of this every day in my financial planning practice. I confess, I am still amazed sometimes at the sizable investment accounts I see people with relatively modest incomes accumulate.
A common component of these success stories is that very little focus was put on daily market news or moves. Instead, they focused on consistently setting money aside without fail.
In short, they focused on the action they could control and took the emotion out of the process. They accept they can't control when the Federal Reserve, Washington or other issues may upset the financial markets. They press on because they believe long-term ownership of quality investments will ultimately deliver the desired results.
Bottom line: When should you begin making your financial goals a priority? The answer is today! Just look at the example above -- if you delay, the catch-up is an uphill battle.
I encourage you to take the initiative and start today. Even if it is a small start, it will make a big difference in your life.
John Burdette is a financial adviser at Fourth Avenue Financial in South Charleston.
Disclaimer: Securities and advisory services offered through National Planning Corporation (NPC), member FINRA/SIPC, a Registered Investment Adviser. Fourth Avenue Financial and NPC are separate and unrelated companies.