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If you are young and have just started on your professional career, chances are that your retirement seems so far off as to be unimportant and certainly not worth starting to plan for now.
Yet consider that if you want to retire at 60 you could well live thirty or more years after you stop working. That’s an awfully long time to support yourself with no income from employment. Sadly, your generation cannot rely on a state pension which means you absolutely need to start saving for your retirement fund now.
Young people have a unique opportunity to take control of their own financial futures by starting to invest in their twenties. The power of compounding gives you a major advantage over older investors. The longer your money is invested for, the more powerful compounding is, which is why the earlier you start, the better. Let’s look at an example of how this works in practice:
Assuming a return of 6%, if a twenty year old invests $100 per month until retirement at age 60, they will have acquired pot of $196,857 on actual savings of $48,000.
If that same person puts off investing until age 40, he or she would have to make contributions of $420 per month to reach the same target by the time he is 60. The late starter will have contributed a total of $100,800 to get to the same total amount.
I’d say that’s a pretty convincing argument for starting saving early. You may think you can’t afford it when you’re young with lower earnings, student debts to pay off and high living costs, but there is no guarantee that you will have more disposable income when you are older. Although your earnings are likely to increase, mortgages and families have a nasty habit of sucking up any extra. Getting into the habit of saving regularly, however small the amounts, will pay huge dividends later on.
Another major advantage for younger investors is the ability to take greater risk. Investment risk is closely linked to the length of time you hold on to your investment – the longer you have an investment for, the more the risk of a professionally managed investment is diminished. That means that young people have an ability to weather the ups and downs of an investment over time and are able to opt for a more adventurous portfolio than someone much closer to retirement.
The media generally portrays investors as old men or city hot shots but the truth is that most investors are ordinary men and women planning their financial futures. You are never too young to begin investing so now is the time to get started.
Infinity recommend investment management by Bestinvest, the UK Wealth Manager of the Year. Bestinvest provide a full range of actively managed, risk adjusted, diversified and independently monitored investment options for Infinity clients. To find out more click on the link below or get in touch for an obligation free meeting with one of our consultants.
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