The Time Value of Money

I often find myself telling stories about former clients who have made costly mistakes. Buying high and selling low, starting a business without a plan, get rich quick schemes, internet love stories gone wrong, day traders. You get the picture. 

But I also had plenty of clients who did things right. I was impressed with Joe, age 22, single, no college, an apprentice in the building trades. In addition to the defined benefit and supplemental pension that came with being a union carpenter, he was also making contributions to an IRA. I congratulated his good savings habit and joked that most guys his age were hanging out in bars with their buddies and chasing girls. 

He explained to me that a few years prior, he met with a financial rep who explained the principle of the ‘time value of money’. I’m imagining that the financial professional was a newbie in the business, anxious to reel in a new client, and trying out his new elevator speech, but I could be way off base about that. At any rate, the concept took hold, and Joe is on his way to a solid financial future. 

This brings up another question. Were it not for the lesson from the advisor, would Joe  have figured out the concept and commenced IRA contributions. I have poked fun at certain financial advisors in past articles, still, I am certain that a good advisor can add value, especially when it comes to coaching an individual’s financial behaviour. The average person needs a little help setting goals, selecting allocations, re-balancing, and having someone to talk them off the ledge when things get rough.

Of course, I’ve seen others like Joe, who started out with good intentions, only to fall off the savings wagon. I hope that doesn’t happen to Joe, and if paying the advisor keeps Joe on the straight and narrow path, it will be money well spent.