Estimated read time: 3-4 minutes
You often hear the phrase, "Time is money."
It usually refers to a business owner knowing that there are only so many hours in a day, and that time wasted leads to a dip in productivity and profits.
Farmers use it too, but in different words; they call it "making hay while the sun shines."
When it comes to money and investments working for you, that well-used phrase is literal. Once you understand compound interest and how powerful it can be, "time is money" takes on new meaning.
It is astounding how much money can grow over time if invested and left alone. That is where compound interest comes into play, and those who understand and apply this principle early are almost always rewarded in the long run.
In his book "The Psychology of Money," Morgan Housel mentions the story of famed investor Warren Buffett (pages 49-52). Considered one of the greatest investors in the world, Buffett is often recognized for his investment prowess.
At the time the book was published in 2020, Buffet had a net worth of $84.5 billion. As impressive as that is, Housel reminds readers that $81.5 billion of that came after Buffet qualified for Social Security in his mid-sixties.
According to Housel, Buffett has a compounded rate of return at 22%.
The rate of return isn't the defining factor in Buffet's investment success, however. Buffet's overall wealth actually has more to do with the amount of time his money has been invested rather than the rate of return. He has been investing money since he was 10 years old.
If you have been investing in the market for a number of years, you have probably seen the effect of compound interest on the growth of your money. The large reward of disciplined investing comes in later years after all the hard work is done along the way.
If you are just starting out or have struggled with various life circumstances—such as bankruptcy, divorce, job changes, whittling down a large mountain of student loan debt, or starting a medical practice—you may need a fresh start on planning for the future. Don't give up. Start where you are, and remember that it takes time to see big changes, but they will come with time.
If you have a career that requires a lot of education and time to obtain, such as becoming a physician, time is an even bigger factor, because your working years are limited. For example, physicians on average, work longer than other people, often partly because they started their careers later. Typically, four years of medical school and three years or more of residency mean many physicians do not begin earning substantial incomes until they're 30 or older, well after their peers who pursued most other professions.
There are a few key things you can do to take advantage of compound interest, regardless of your age or situation.
- Be consistent. Make sure you are putting away something from every paycheck.
- Have a plan. Make sure you know where you are and where you are headed. And in making your plan, be sure you are working with someone who can help you get there and who understands your overall goals.
- Be patient. If you keep investing, you will see your money compound over time.
When it comes to investing your money, time is a big factor. However, leveraging a financial advisor provides a number of significant benefits too. We have a duty to demonstrate and provide real, measurable value each year in order to continue earning the trust and business of our clients. We do that. We would love to teach you how. TrueNorth Wealth offers a no-cost consultation to teach that value and show you how we can help you prepare to prudently endure your retirement.
To schedule a no-cost investment and retirement planning consultation tailored to your personal financial goals, contact the fee-only financial planners at TrueNorth Wealth, one of Salt Lake City's fee-only, wealth management firms. 801-316-8175.