You don't have to be rich to invest
The Advocate, Wednesday April 28, 1993
A lot of people feel you have to be rich to invest, Not so. You must save in order to become rich, and even the most humble, and lowly worker can do so, if he or she wishes. It isn't what you earn that counts, it's what you save.
A client of mine was an average man who had been a carpenter. He died recently, leaving an estate of over half a million dollars. His widow didn't know a lot about his investments before he died. She had confidence in her husband and he had confidence in me. He also had a plan in place.
Today, his wife has no financial worries. Her husband had set her up with a regular monthly income from the investments he had with me. She loves her husband even more now, knowing how well he provided for her even after his death.
At the same time, I know individuals you expect are well off because they made a lot of money. This is not necessarily so. They have also lived up to limits of their income.
When retirement loomed closer. they realized they were in trouble. They did not have the luxury of time. They did not have a plan in place where they saved a part of what they earned. Now they have to work at a time when they should have been retired.
The secret to riches is three-fold.
It consists of time, money (savings), and rate of return. Time by far is the most important. As an example, if you started saving just $50 per month at the age of 21. and achieved an average return of 15
per cent per year, you would end up at age 65 with over $2 million.
However, if you wait just four years, and start at age 25. your value at age 65 would be $1,227,500, which is $772,000 less than if you had started four years earlier, and in effect invested (4 x $600) more.
If you wait until age 30 to start. your value could he under $6O8,007, which is $1.4 million less than if you started at age 21. This proves the value of time in investing. Every year you wait it just gets worse. Pity the person who waits until they are well into middle age.
But where in the past have you been able to achieve 15 per cent average per year? After all, according to the Bank of Canada Review, the average rate for five-year guaranteed certificates over the past 15 years has been just over nine per cent. Canada Savings Bonds have averaged about the same, as have mortgages.
True, all these mediums of investment have had a higher rate of return in the past year or two but everyone agrees these rates are temporary. What are they now?
However, during those same 15 years, many mutual funds averaged 12 and 15 percent compounded per year. Admittedly, some years they achieved 20 and 40 per cent gains, and in others there were even negative returns.
But as a five-year or more investment, the results have been far superior to any other group-type of investment. No, you don't have to he rich to invest.
One article I like to give people is entitled, "Make the World Your Oyster:" I'll explain that in my next column.
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