Wasted Youth

Jonathan Clements

EARLY IN OUR ADULT life, we get involved with all kinds of dubious financial types. There are the actively managed funds that quickly lose their charm, the insurance salespeople who try to force their policies on us, the market strategists who take us to all the wrong places and the hot stocks that let us down none too gently.

By the time folks get to HumbleDollar, however, I figure they’ve finished playing the field. This isn’t the site where you date dodgy stocks and feckless market forecasters. Instead, it’s the place you settle down and commit to a sensible, long-term relationship with your money. My fondest wish: Folks get here as early in their adult life as possible.

I have heard it said (and I may even have said it myself) that, if you’re going to make financial mistakes, it’s best to do so when you’re young and there isn’t much money at stake. A foolish gamble on a single rotten stock is less costly when you have $10,000 to play with, rather than $1 million.

That’s true. Still, those reckless days of youth are more costly than they seem. Take that $10,000 mistake. If, instead, you had invested in a broad stock-market index fund that earned an inflation-adjusted 4% a year over the next 50 years, you would have more than $71,000 to enjoy in retirement or bequeath to your heirs.

And it isn’t just the wealth forgone. By messing around with our money early in our adult life, we postpone the moment when we achieve a sense of financial security and some measure of financial freedom. The initial years as a saver and investor can be discouraging, in large part because the key driver of our portfolio’s growth is the raw dollars we sock away. But if we save 10% to 15% of our income every year for 10 or 15 years, we should amass a substantial sum—and hit a financial tipping point, where the investment earnings we collect each year start to rival the dollars we sock away. Thereafter, the combination of savings and investment gains can drive spectacular portfolio growth.

By accumulating wealth early on, we can also sidestep a slew of other costs. For instance, once we have a healthy sum put away, we might be comfortable raising the deductibles on our insurance and we could avoid a host of financial account fees. The cost savings that result can allow us to sock away even more money each year—and further propel our nest egg’s growth.

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