The power of investing your money as early as possible to maximize your portfolios future value is definitely not a new concept. However, this concept is harshly overlooked by young adults entering the work force for the first time and to their detriment. In the swing of graduating college and getting their first jobs, most are not prepared to handle their finances correctly within the first few years of entering the work force. This causes them to lose out on significant investment opportunities that could pay off when they go to make their first Major Purchase. RetireCoach.org breaks down a very simplistic 5 year plan for new graduates entering the work force with no knowledge of investments.
The 5 year scope
This is a graphical representation of the power of investing your money earlier in various ETF’s, Mutual Funds, and Stocks with a moderate ROI of 5% a year.
This plan works under the conditions that you can
- Set aside $100 a month in monthly income to invest in various investment vehicles
- Resist the urge to withdraw or sell any of the investments for 5 years
The graph shows the basic return on investment for an individual investing $100 a month of after tax money into various different investment vehicles. For the sake of being of modest, the graph uses a 5% return rate. In reality, your investments could earn more or less depending on your investment selections (Historically, Berkshire Hathaway stock has gone up 15% in the last 20 years) We can see that a person investing $100 a month ($1200 annually) would wind up with an approximate portfolio value of $ 6,962.30. This is $962.30 or 16% more than what they would have wound up having kept their money in their checking account.
As much as tying up your money for 5 years might seem like a long time for a young adult, this is around the average time it takes from a graduate getting their first job to making their first large purchase (Mortgage) and the added financial power provided by investment gains will ultimately have satisfying payoffs if planned properly. For those with a little bit of extra money every month, we can see the power of holding your money in safer investments with moderate expected ROI %’s.