If I could summarize the mistake I see folks making across all generations, income brackets, or cultural backgrounds, it’s the lack of patience. Money gives people anxiety no matter who they are and what stages of their lives they’re at, and yet it shouldn’t thanks to all the folks who’ve studied economic and financial trends over the years. So, what’s the one principle from these studies that will make you rich?
Forgetting about your money.
Now, I don’t mean forgetting about it as in not caring. What this means is to invest and not think about it for years. To weather all financial storms or personal crisis without touching the money you’ve invested. And, don’t just take my word for it. Naval Ravikant, a well known investor who founded AngelList and an early investor in Uber, Twitter, and more is well known for his beliefs around compounding growth. He sums it up best in a simple tweet:
And no truer statement has been uttered, especially when it comes to finances. It’s why I so wholeheartedly recommend the Roth IRA as an investment vehicle, or any retirement plan account available where you live. Anywhere that you can put away some spare funds and let it grow for years and years, until compound interest does the rest.
Now, to illustrate the power of compound interest, I want to run through a scenario. Say that, starting today, you want to invest $6,000 into the stock market annually (which just so happens to be the limit for a Roth IRA), let’s see how this plays out using Smartasset’s investment calculator. For this exercise, we’re assuming a modest 5% return, although the stock market historically returns 7%.
For ten years, we invest $6,000, not touching a dime. The value would grow to 75k with over 15.5k in interest!
Okay, but just ten years? Anyone can do ten years. Let’s keep our money in longer. Heck, let’s go for twenty years and see what happens….
78.5k in interest! That’s no small number. A manageable 6k a year in investing can get you enough to buy a house outright. But why stop here? Let’s take this even further and see what happens in thirty years.
The interest earned exceeds the contributions! That, friends, is the compound interest in action. If you faithfully invest $6,000 a year with a modest 5% returns (again, the market typically beats that), you’d have $400,000 to play with. That’s more than a meager sum, enough to move to Thailand and eat lay on the beach for the rest of your days.
So, I hope what you’ve read convinces the anxious day trader in you to slow down and try a different approach. One free of stress and full of prosperity. Simply put, the more you can strive for patience, the brighter your future.
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