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Invest? Hey, I'm Only 22 Years Old!

I know, I know. You're 22, recently college graduated-or not-and you aren't very far into your working career yet. You're setting up an apartment either alone or with a friend or two. You're eyeing a new BMW-or whatever-to replace that ancient Chevy your parents helped you buy in the distant past. You're having a fine time skiing, traveling, going to parties, dating, and socializing in a lots of ways with your peers. You're busy doing all those things you ought to be doing at 22 years of age. It all takes money, and even though you are drawing a nice paycheck, there's not a lot left at the end of a pay period. Besides, you're only 22 and there's plenty of time to worry about the future later.

Well-yeah, you do have a lot of time when you are twenty two years old, and it's your life so you can approach it any way you want. There IS one, mmm, sort of inconsistency that happens somewhere in our brain to most of us when we're young, and it's this. Intellectually we know time will pass, we will grow older, eventually we will grow old, and then die some day; but, emotionally we don't believe it. The writer William Saroyan made an observation near the end of his life that illustrates the point. His comment goes something like this, "I always knew people die, but I never thought it would happen to me. Now what?"

You get the point. It's hard to take into account the far distant future at age twenty two, but it might not be a bad idea to do a little bit of exactly that. My goal isn't to throw a wet blanket over the delightful life you're in the process of discovering, but to plant a small seed in your mind for you to consider. Who knows, some day you might decide to get married and have a family, and you'll probably want a house to house the family. You may want to help your children with some of their college expenses, and you might want to have a plan, and funds for the plan, for when you do get old enough to retire from your career; and maybe the best way to prepare for those future events is to develop an "investing habit" early in your working career. Who knows, it could happen that you will actually live to age sixty five, or seventy five, or more; and it has always seemed to me that growing old is a lot better than the only other alternative we know about. The other thing is that growing old with a reasonable amount of money to support you will be a lot better than growing old and having hardly any money available.

Above I said that at twenty two years of age you do have lots of time to worry about the future. What if we twist that notion a bit by changing "worry about" to "prepare for?" You do have lots of time, and in money management efforts time can be exceedingly powerful. I'll run some figures for you later in this writing, but you may want to read another article here on the ITS: FYI page titled "The Power of Compounding" that illustrates how invested money can grow in a startling way if given enough time.

So, the idea is to start saving and investing for your future while you ARE still young because that gives your investments lots of time to work for you. You don't have to devote most of your earnings to the process either-just part of it. How large that part will be is for you to decide. Of that part of your income you decide to invest, you might invest some in an account for marriage, house, kids; and some in another account for retirement. As a people, Americans don't really do very well in terms of saving, but you aren't "most Americans." You can choose a different path if you want.

Tell you what. Let's play out a scenario that won't take too big a bite out of your life and see what could happen. How much damage would $200 a month do to you life style? Probably not much, so let's use that figure for your monthly contribution to a retirement investment account. Two hundred dollars a month times twelve months (amazingly) works out to $2,400 a year. A truism here is that over time your pay will increase and in a few years you won't even miss the two hundred bucks.

Ok.. Here we go. You decide to invest $2400 every year, and you elect to put the money in an IRA using a mutual fund that invests in common stocks of American companies. Over a hundred years, the stock market has averaged returning ten percent per year, so we'll use that return rate in the calculation. Now, since this is money intended for your retirement, you make a firm vow-and then keep it-never to withdraw and spend any of it for forty years, at which time you will be sixty two years old. Let's see what would happen.

• At age 30, your investment will pay into your account more than the $2400 you put in it.
• At age 32, ten years into your program, the account will be worth $38,249.
• When you reach 42, you will have $137,460.
• At 52, $393,785.
• When you turn 62, the value will be $1,062,222. At this point, you will have contributed $96,000 to your account, and your investment will have returned $966,222 to your total. That's ten times more than you invested over the years.
• Should you completely love your job and not need to begin drawing out money until you reach the age of seventy and one half, at which time the law governing IRAs requires that you begin withdrawing the money, you would have the amazing total of $2,304,414. Written text form, the amount makes a pretty long sentence. Two million, three hundred four thousand, four hundred and fourteen bucks!

To accomplish this, you don't have to do anything tricky or risky either. All you need to do is invest your IRA contributions in what is termed, "an equity indexed fund" with an investment management company. An indexed fund invests shareholder contributions so as to match the "weighting" of one of the much watched stock market index averages, such as the S&P 500 Index. Some years your shares will do very, very well for you, and in other years they won't grow much; however, the kicker is that if you give it enough time, ( forty year time span in this example), your fund shares will grow enormously with your having done nothing more than make a plan and stick to it.

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