[et_pb_section fb_built=”1″ _builder_version=”3.0.47″][et_pb_row _builder_version=”3.0.47″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”][et_pb_column type=”4_4″ _builder_version=”3.0.47″ parallax=”off” parallax_method=”on”][et_pb_post_title author=”off” categories=”off” comments=”off” _builder_version=”3.0.90″ title_level=”h2″ title_font=”Playfair Display||||||||” title_font_size=”30px”][\/et_pb_post_title][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”3.0.47″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”][et_pb_column type=”4_4″ _builder_version=”3.0.47″ parallax=”off” parallax_method=”on”][et_pb_text _builder_version=”3.0.90″ text_font=”||||||||” text_font_size=”17px” text_line_height=”1.8em” background_size=”initial” background_position=”top_left” background_repeat=”repeat”]<\/p>\n

When you invest your money, you are saving it with an expectation of a return. The return you receive can have a significant impact on your savings, especially over time.<\/p>\n

For example, if you earn a rate of return of 3% on a $10,000 investment over 40 years, you will have $32,620.\u00a0 If instead you earn 6%, you will have $102,857<\/b>.\u00a0 That\u2019s a big difference!<\/p>\n

Remember that phrase \u201ccompounding interest\u201d<\/i>?\u00a0 That\u2019s what\u2019s happening here but instead of it working against us like it does with loans, it\u2019s helping us out with our savings.\u00a0 Your interest is earning interest.\u00a0 It\u2019s literally free money!<\/p>\n

This concept is also why someone who saves earlier even with just a small amount of money will end up with more than someone who saves a lot of money over a shorter period of time.<\/p>\n

To illustrate this, let\u2019s look at two investors over a 30-year period. Anna decides to save early and saves $5,000 a year over the first 15 years.\u00a0 She stops saving but allows it to grow earning 8% over the next 15 years.\u00a0 John doesn\u2019t save right away, in fact waits 15 years to start.\u00a0 In order to make up for lost time, he saves twice as much a year ($10,000) for the remaining 15 years.\u00a0 He also earns 8%.<\/p>\n

$\"\"$ <\/a>
Understanding the Risks of Investing<\/p><\/div>
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$\"\"$ <\/a>
The Big 3: Stocks, Bonds, & Cash<\/p><\/div>
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$\"\"$ <\/a>
Size Matters! (Especially when it comes to investing)<\/p><\/div>
\n[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":"
[et_pb_section fb_built=”1″ _builder_version=”3.0.47″][et_pb_row _builder_version=”3.0.47″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”][et_pb_column type=”4_4″ _builder_version=”3.0.47″ parallax=”off” parallax_method=”on”][et_pb_post_title author=”off” categories=”off” comments=”off” _builder_version=”3.0.90″ title_level=”h2″ title_font=”Playfair Display||||||||” title_font_size=”30px”][\/et_pb_post_title][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”3.0.47″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”][et_pb_column type=”4_4″ _builder_version=”3.0.47″ parallax=”off” parallax_method=”on”][et_pb_text _builder_version=”3.0.90″ text_font=”||||||||” text_font_size=”17px” text_line_height=”1.8em” background_size=”initial” background_position=”top_left” background_repeat=”repeat”] When you invest your money, you are saving it with an expectation of a return. The return you receive can have […]<\/p>\n","protected":false},"author":2,"featured_media":1431,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"
When you invest your money, you are saving it with an expectation of a return.\u00a0 The return you receive can have a significant impact on your savings, especially over time.<\/p>
[message type=\"simple\"]For example, if you earn a rate of return of 3% on a $10,000 investment over 40 years, you will have $32,620.\u00a0 If instead you earn 6%, you will have $102,857<\/b>.\u00a0 That\u2019s a big difference! [\/message]<\/p>
Remember that phrase \u201ccompounding interest\u201d<\/i>?\u00a0 That\u2019s what\u2019s happening here but instead of it working against us like it does with loans, it\u2019s helping us out with our savings.\u00a0 Your interest is earning interest.\u00a0 It\u2019s literally free money!<\/p>
This concept is also why someone who saves earlier even with just a small amount of money will end up with more than someone who saves a lot of money over a shorter period of time.<\/p>
To illustrate this, let\u2019s look at two investors over a 30-year period. \u00a0Anna decides to save early and saves $5,000 a year over the first 15 years.\u00a0 She stops saving but allows it to grow earning 8% over the next 15 years.\u00a0 John doesn\u2019t save right away, in fact waits 15 years to start.\u00a0 In order to make up for lost time, he saves twice as much a year ($10,000) for the remaining 15 years.\u00a0 He also earns 8%.<\/p>
$\"time-interest-graph_03\"$ <\/a>Look at the difference at the end of the 30-year period.\u00a0\u00a0 John\u2019s account balance is worth $271,521 but Anna\u2019s is $430,653!\u00a0 Even though John saved twice as much as Anna, her money had more time to grow.\u00a0 She ended up with more\u2026 much more!<\/p>
I think this makes us all want to be like Anna.\u00a0 There are two parts that make her scenario work though\u2026 \u00a0two very important parts.<\/p>
First, keep the money invested<\/b>.\u00a0 When I was first encouraged to start saving for retirement, I wasn\u2019t even old enough to participate in our employer retirement plan. \u00a0\u00a0Despite that, I found a way to invest a small amount of money.\u00a0 Less than three years later, though, I cashed it out.\u00a0\u00a0\u00a0 It seemed like such a small amount of money at the time. (I think it was less than $1,500.)\u00a0 Oh, how I wish I could redo that decision!\u00a0 That little bit of money would not be so little now. (I figure it\u2019d be worth about 5,000 now and in another 15 years, $15,000!)<\/p>
Secondly, keep earning interest.<\/b>\u00a0 If you don\u2019t keep earning the same average rate of return, you won\u2019t have the same results.\u00a0 That\u2019s why it\u2019s important to monitor your investment. Sometimes people move their investments to cash for various reasons.\u00a0 If left in cash for too long, you interrupt the compounding process.<\/p>
Understanding how time and the rate of return you earn impact your savings is important in developing your own investment strategy.\u00a0\u00a0 If you are saving over a 30-year period, you have a long time before you need that money. \u00a0The rate of return you earn is going to have a larger impact. \u00a0Investing in something that is only earning you an average of 3% is probably not the best strategy.\u00a0 (This becomes even more evident when we start talking about inflation.)<\/p>
Determining what investments to use in order to achieve the rate of return you are targeting is the next step.\u00a0 Considering your savings account is unlikely to earn you much more than 3% over time, we have to start looking at other investment options.\u00a0 It\u2019s at this point we start talking about risk.\u00a0 Yikes!\u00a0 So stay tuned as we tackle that very topic next.<\/p>","_et_gb_content_width":"","sharing_disabled":false,"spay_email":"","jetpack_publicize_message":""},"categories":[3],"tags":[],"jetpack_featured_media_url":"https:\/\/sarahcarrfinancial.com\/wp-content\/uploads\/2013\/05\/Time-Interest.png","jetpack_publicize_connections":[],"jetpack_shortlink":"https:\/\/wp.me\/p9rIpx-1f","_links":{"self":[{"href":"https:\/\/sarahcarrfinancial.com\/wp-json\/wp\/v2\/posts\/77"}],"collection":[{"href":"https:\/\/sarahcarrfinancial.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sarahcarrfinancial.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sarahcarrfinancial.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/sarahcarrfinancial.com\/wp-json\/wp\/v2\/comments?post=77"}],"version-history":[{"count":16,"href":"https:\/\/sarahcarrfinancial.com\/wp-json\/wp\/v2\/posts\/77\/revisions"}],"predecessor-version":[{"id":1494,"href":"https:\/\/sarahcarrfinancial.com\/wp-json\/wp\/v2\/posts\/77\/revisions\/1494"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/sarahcarrfinancial.com\/wp-json\/wp\/v2\/media\/1431"}],"wp:attachment":[{"href":"https:\/\/sarahcarrfinancial.com\/wp-json\/wp\/v2\/media?parent=77"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sarahcarrfinancial.com\/wp-json\/wp\/v2\/categories?post=77"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sarahcarrfinancial.com\/wp-json\/wp\/v2\/tags?post=77"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}