The First 10 Years Of Investing

How important are your first 10 years of investing to your retirement?

If you're like most people, money is really tight when you're starting out on your own. Between bills to pay and social expenses that eventually transform into growing family expenses, it can be easy to choose to put off saving for retirement. And with your whole adult life ahead of you, you might conclude you can put of saving for later.

But can you afford to that if you want to retire with any kind of comfort?

What started us thinking about this topic is a recent article by Nick Maggiulli, entitled "Go Big, Then Stop". In it, he explores an investment strategy that really exploits the miracle of compounding, but we'll let him describe how it works:

What I’m talking about is a savings philosophy so effective that it can put your future finances on easy mode. It can help you to build wealth for decades while you literally do nothing. It may just be the lowest effort way to set yourself up for a nice retirement. How does it work?

You save as much as you can as early as you can, then you stop saving altogether (if you want). Go big, then stop.

Why is this strategy so effective? There are two reasons:

Money invested earlier in time typically grows more than money invested later in time.

Compounding money is easier than saving money.

The first point is mathematical. If we assume that markets compound by some positive rate each year (on average), then money invested earlier will grow to more than money invested later.

The second point, however, is behavioral. It takes all sorts of willpower and planning to save money throughout your life. However, when it comes to compounding your money, it takes almost no effort at all. All you have to do is wait and the market does the hard work for you.

In the discussion that follows, Maggiuli emphasizes the role of saving and investing as early as possible to build up a large stake toward your retirement, particularly during the first 10 years after you start earning an income. After that, you can let compounding through interest or dividend reinvestment do the most of the work of building up your retirement savings.

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