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Give your investments time to grow and you'll have a better chance of reaching your long-term goals, whether that means enjoying a comfortable retirement, affording your child's college education or fulfilling a lifelong dream.
When you invest for the future, it's important to start early so you can keep time on your side. To achieve your goals, consider the following steps:
The example below shows the long-term benefit of investing at age 25 instead of waiting until age 35. But you shouldn't be discouraged if you haven't already started investing for your long-term goals. Simply start as soon as you can - it's never too late to plan for the future. You still can take advantage of time with your investments, no matter what your age may be.
Even though Lisa put in one-third the amount of money that David did, she still has more money in her account at age 65. Lisa started investing at age 25 instead of waiting until age 35. That's the power of starting early and giving your investments time to grow.
*Source: American Century Investments. This example is hypothetical, for illustration purposes only and does not represent any specific investment product.
The more time you have for your investments to grow and compound, the more likely you are to reach your goals. Compounding occurs when you earn money on your original investment, or your principal amount, and on any earnings from that original investment.
Let's say you invested $10,000 in a money market mutual fund that had a yield of 4%, and you earned $400 in dividends the first year. Assuming you didn't make any additional investments and the money market fund's yield stayed the same, the second year you would earn $416 ($10,400 at 4%) instead of just $400.
While an additional $16 may not seem like much in this example, it still shows that compounding can have a powerful effect over the long term. You have the potential to continue earning money on your principal plus your previous earnings year after year, which can add up over time.
Money Market Fund: An investment in the fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund.
A money market fund alone may not provide you with the growth you need over time to outpace inflation and help you reach your goals. Stock funds can provide higher potential for growth (but also higher risk). Diversifying your investments among stock, bond and money market mutual funds can help balance the growth potential with the overall risk of your portfolio. But remember that diversification cannot ensure against loss.
When it comes to your long-term goals, it's probably best to ignore day-to-day market fluctuations and stick to your investment plan. Instead, focus on accumulating the assets you need farther down the road. Money earmarked for longer-term goals should not be disturbed solely because of short-term market fluctuations.
Your investment goals are important. To reach them, nothing can take the place of careful planning. Start with the simple principles discussed in this article, so you can put time on your side and achieve your investment goals.
This information is for educational purposes only and is not intended as investment advice.