In the last year, clients have been concerned about how the pandemic would affect their portfolio and wondered whether to stay in the market or bail. As I discussed this dilemma with clients, I started thinking about the classic rock song by The Rolling Stones “Time is On My Side.” When it comes to investing for retirement, time really is on your side. It helps you overlook the fluctuations within a balanced portfolio and concentrate on the long-term performance of your retirement accounts. So, how does time help your investments?
- Compounding Effect – Compounding has been called the eighth wonder of the world because of the amazing effect it has on the growth of your investments. To take full advantage of the compounding effect, you need to reinvest the returns and/or interest made on the initial investment. Let’s look at a $1,000 investment in your retirement account at 10%. Without compounding, you would have $1,500 after 5 years. With the power of compounding and leaving your annual returns invested, that same $1,000, after 5 years, is now worth $1,610.51 resulting in a 6.1% return. Extrapolating into the future, time will continue to accelerate the rate of growth of your initial investment.
- Diversification -Over time, diversification helps to smooth the growth of your investments and allows you to stay invested when markets are volatile.
- Discipline – Small consistent actions over time, result in big returns. Even small monthly investments can grow into significant balances over time.
- Lower volatility – The longer the time horizon, the lower the potential risk. Over shorter periods, investors experience the ups and downs of the markets but the longer the time period the smoother the overall risk you can experience in your investment portfolio.
- Lower investment anxiety – Knowing you have time to weather market corrections helps keep you on track to reaching your financial goals. Historically, time has shown to have a positive effect on investment portfolios.
- Greater chance of success – When you have more time to reach your goal, you tend to make wiser decisions. Time can be the ultimate redemption for most investors as it allows them to grow their investments significantly and realize their goals.
By taking action today, you can maximize the effect that time can have on your investments, and you will be that much closer to your financial goals. Shouldn’t you put time on your side? It may be the best decision you will ever make.
Mario Hernandez has been a Certified Financial Planner (CFP) for over 30 years and brings a vast amount of experience in the financial planning and investment management business. Through Longevity Wealth Management, Mario provides holistic planning services that help clients find solutions to live their best life. Mario’s email address is mario@longevitywealthmanagement.com. Securities offered through Osaic Wealth, Inc. member FINRA/SIPC. Investment advisory services offered through Longevity Wealth Management. Osaic Wealth, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Oasic. Certain insurance products are offered by Mario Hernandez as a licensed agent independent of Osaic Wealth, Inc.. Mario Hernandez is not affiliated with Osaic Wealth, Inc. or registered as a broker-dealer or investment advisor.
