Time Is the Key To Investing

2006-01-27

When investing for retirement, stocks are vital to any successful investment strategy. Since 1926, stocks have generated an average return on investment of 10%, while bonds have only returned about 5% a year. Once inflation s accounted for, which has run on average 3% a year, the net return from stocks has been about 7% a year. While the net return on bonds and other low risk investments has only been around 2%.

Although a 7% return on investment doesn’t sound like much when you look at a one year period. But when you look you take it the concept of reinvestment and time, your returns could be much greater.

For example, using the Retirement Savings Calculator we observed the following example. Assuming you would like to withdraw $3000/mth for 20 years of retirement and you estimate a 7% interest rate, you would need to have $386,947.52 in retirement savings. Now that we have our goal established, let’s see what it is going to take to get there.

We then enter the $386,947.52 into the Savings Goal Calculator and enter $1000 into the current savings (most investment accounts will require a $1000 deposit) and 7% in the interest box and 30 years (in our case) in the Number of Years box as the investment time. We discover that we would have to save $310.94 a month to accomplish our goal.

This is a simple example of how investing a little over a long period of time can go a long way toward securing your future tomorrow. Investing a fixed amount over time can pay big dividends in your retirement years.

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