Starting Early Pays Off

Oct 13, 2010, 16:50 ET from ASPIRA Association

WASHINGTON, Oct. 13 /PRNewswire-USNewswire/ -- To achieve your goal of having a financially stable retirement, you need to carefully plan your investments and start saving as early as possible. Social Security may not be a dependable form of income in the future, so other types of income will be necessary to cover your financial needs. As with any investment strategy, you need to explore the available options provided by your employer as well as other personal investment options.

We live in an uncertain world where jobs are easy to lose and incomes are fragile, so relying on the government for anything more than a basic financial safety net is unwise. In addition, United States citizens are living longer. Many Americans are living for 20 or 30 years after their retirements.

State pensions and Social Security, formerly a reliable source of income, don't seem to be generous or even available anymore, and many employers have also lowered their contributions to employee's pension plans.

Therefore, saving and investing are more important than people think. You don't have to be a math wizard to see how your money can grow. The rule of 72 is a fast way to calculate the years that it will take you to double your money to a particular interest rate. You divide by 72 the interest rate you are currently receiving.

For example, let's say you have $1,000 and you want to know how long it will take to double your money. If you earn 6% interest each year on your account, you divide 72 by 6: 72 ÷ 6 (representing 6% interest) = 12 (years to double your money). At the end of 12 years, you will have just over $2,000 in your account.

Remember, this illustration only focuses on the impact of compounding interest on your initial deposit of $1,000—and does not take into account any additional deposits you might make over time. If you were to deposit $100 each year to your account, it would take only 6 years for you to have $2,000. The true magic of compound interest is that you earn interest not only on your principal but also on the interest you accumulate each year.

Keep in mind that time is your best ally when you invest, even if it is a modest monthly amount. Invest periodically: this is known as dollar-cost averaging. For example, if you invest $100 monthly for 20 years at an interest rate of 6%, your principal will be $24,000 and at 6%, your savings will be worth $46,435.11.

Remember, time is your best ally. Don't follow your natural instincts of selling and buying in fluctuating markets. Time has proven that dollar-cost averaging is the best strategy. Leaving the market when it is down will not allow you to take advantage when it rises again. Stay the course!

For more information and examples on this topic, see "Resources for a better financial future" in the Web site of The Aspira Association This publication was made possible by a generous grant from the FINRA Investor Education Foundation.

FINRA Investor Education Foundation

The FINRA Investor Education Foundation, established in 2003 by FINRA, supports innovative research and educational projects that give underserved Americans the knowledge, skills and tools necessary for financial success throughout life. For details about grant programs and other FINRA Foundation initiatives, visit