Investing Young

               piggybank 

 There’s a lot more to investing than tying up major funds in order to one day purchase a home or be able to live out your retirement scuba diving in Aruba and eating lobster as a daily staple. It may not seem like it, but you make investment decisions every day. Buying a designer bag — investment decision. Leaving your meager savings in a checking account rather than a high yield savings account — investment decision. Spending $200 on Saturday nights at the club — investment decision (an enjoyable one, though by Sunday you wonder what happened last night). Truth be told, everything you do with your money is an investment decision—some just have the potential to bring you much larger returns, monetary and/or intangibles.

 “Why should I invest?” It seems like a valid question. What’s the fun in stashing away your hard-earned money in an RRSP when you could be downing Grey Goose shots dancing to “I’m in Vancouver Bitch!”, strutting in True Religion jeans, or riding down the highway on your motorcycle or convertible with the wind in your face and not a care in the world? We’ve lived like peasants, crammed in little dorm rooms and eating Shin Ramyun for four years while in school in order to land jobs. Once the paychecks start rolling in, it’s our right to spend our hard and well earned money as we please.

Then again, “Why should I wear a helmet on my motorcycle?” and “Why should I wear pants to work?” could all also be considered valid questions.20090625_walmartgreeter_2 The answer to the investment query—as with the other two—is not complicated. Although it may not be fun now, investing even small amounts while you’re young affords you the opportunity to one day own a home, live debt free, and guarantee that you won’t be greeting customers at Wal-Mart well into your seventies (though they do a fine job.)

Not that all investing is about retirement. These days, leaving all your cash in a simple checking or savings account doesn’t make any sense. Online savings and trading accounts will earn you two to five times as much interest. It’s all about making your money work for you—so whether saving up for a laptop, BMW 3-Series, wedding, or early retirement, the same rules apply—start early, take advantage of compound interest, and maximize those returns.

It’s tempting not to worry about retirement at your tender young age. I always applied this same logic to my English papers, and they turned out okay. Unfortunately, with Social Security’s seemingly imminent demise and the disappearance of pension-offering jobs, you should consider it your responsibility to foot your retirement bill. Once retired, you’ll need about 75 percent of your pre-retirement income to maintain a similar standard of living. This means that if you are making $150,000, retire at age 60, and live to be 90, you’ll need to have saved over $3,000,000. That probably seems like a lot, but you have the most important element of retirement savings on our side—youth.

The sooner you start investing the better. If you invest $2,000 every year, starting right now at age 23, and earn an annual rate of return of 10 percent, by age 65 your $86,000 in investments will be worth over $1.5 million. If you wait until age 36 to start investing the same annual amount, your $60,000 will have turned into a paltry by comparison $360,000.

“Do I really have money to invest?

 Irony of ironies—just at the time when investing benefits you the most, it’s the most difficult. Although you have graduated from University, you’re not exactly living like a king. Rent, car payments, and the multitude of fun you allow yourself on the weekends is hitting your bank account hard. And unlike student loan, credit card, and utility bill payments, transferring funds to an investment account is optional, and thus the first thing you tend to ignore.

mocha-coco-frappuccinoIt may seem difficult, but the truth is, you do have money to invest. If you’re able to contribute as little as $100 a month to an investment account, you’ll have a sizable portfolio in no time. Coming up with $100 a month is as easy as skipping the daily latte, buying regular gasoline instead of premium, and smoking less cannabis.

Most of you probably don’t like the idea of skimping on life’s luxuries, but just hear me out. That $3.50 Mochachino probably doesn’t seem like a big expenditure, but it adds up. Skipping this daily treat would pocket you an extra $105 every month. Ten years of investing this amount in a brokerage account, earning an annual rate of return of 10 percent, will leave you with $21,000 to spend however you please. That’s one expensive beverage.

The thing to remember here is that we probably all have at least a little cash in various savings accounts, savings bonds from grandma, and retirement accounts at work. Taking the time to maximize the returns from these investment vehicles (or switching to more lucrative options) may involve investing a little time, but surely solidifying your financial future is worth it. If you plan well ahead, your future financial dreams will come true and dining on Atlantic lobster claws anytime you wish could just become a Wednesday night norm.

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