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The secret to successful investing is simple. That's what makes it all the more tragic that so many people miss out on their best chance to become truly wealthy.
In the arsenal of the average investor, the best weapon you have is time. If you have plenty of time before you'll need the money you're investing, then you can afford to sit tight through tough markets -- even sustained down markets like the one we experienced during 2008 and early 2009. You can confidently wait for the market's long-term upward trend to reassert itself, and even take advantage of bargain stock prices to reap some serious gains.
Time is on your side
The sad thing, though, is that so many workers don't take advantage of the period of their life when they have the longest time horizon. According to Fidelity, less than half of those between 20 and 29 years old who are eligible to contribute to an IRA or an employer-sponsored retirement plan such as a 401(k) actually do so. In contrast, by the time you get into your 50s, more than 70% of those eligible have started saving in retirement accounts.
There are plenty of reasons people choose not to start saving for retirement early in their lives. Yet each of those excuses is fundamentally flawed. Let's look at some of the most common reasons people wait too long to start investing for retirement.
1. I'm too young to worry about retiring.
When you're just getting started, you have plenty of more immediate concerns than worrying about retirement. You might have student loans or other debt to pay down. You might be thinking about buying your first home or starting a family. Or you might just want to enjoy some of the money you're earning.
Still, there are a couple of reasons starting early makes sense. First, giving your money an extra 10 or 20 years to grow makes a huge difference to what you'll end up with in retirement. But perhaps more importantly, starting to save for long-term goals now begins a good habit that will serve you well for the rest of your life. If you learn to trade a little money now for a lot more in the future, then anything becomes possible.
2. Now's a terrible time to invest.
Despite the big rally, companies such as GameStop (NYSE: GME ) are still struggling to recover. Meanwhile, many stocks, including Capital One (NYSE: COF ) , Teck Resources (NYSE: TCK ) , and International Paper (NYSE: IP ) , have more than tripled in the past year. Given those run-ups, it's easy to think that you've already missed out on the best gains those stocks will ever enjoy.
The problem with that line of thinking is that there's always a reason not to invest. Last year, for instance, even well-known companies such as Ford Motor (NYSE: F ) and General Electric (NYSE: GE ) looked to be on the rocks. Many stocks, such as Sirius XM Radio (Nasdaq: SIRI ) , had fallen by more than 90% in just a year's time. If you're always convinced that stocks are either too dangerous or too expensive, then you'll never invest -- and you'll miss out on plenty of profitable opportunities.
3. I don't have enough money to make it worth it.
It's hard to come up with money to invest, especially during a down economy. You might easily think that the $25 or $50 a month you might be able to scrape together won't do a bit of good in the long run.
But nothing could be further from the truth. Over the course of 40 years, you might reasonably expect to see your money multiply between 20 and 50 times, if you can earn between 8% and 10% on your money. That will turn each of those $25 monthly deposits into $500 or $1,250. A year's worth of saving could put $15,000 extra in your retirement account -- not bad for a modest investment.
As tempting as it may be just to procrastinate for another year, the better choice is to move forward with your savings now. It's not the easiest thing to do, but it may be the best move you could make with your money.