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Investing Basics
The difference between saving and investing for your future is significant. While the saver is interested in protecting his or her assets (money), the investor's goal is to grow or increase the initial amount of money being invested. Like all things, nothing is for free, and growing your money doesn't happen without risk. Being an investor definitely takes more planning and patience, but you'll be better prepared to meet your economic needs in the long run.
It's important to remember that key differences exist between deposit accounts such as checking or savings, and mutual funds and other investments. Deposit accounts are backed by insurance from the Federal Deposit Insurance Corporation (FDIC), while mutual funds, stocks and bonds are not. In addition, they are not obligations of any financial institution and are subject to risks, including possible loss of the principal amount invested.
Start Planning Now
It's never too early to start thinking about saving and investing for your future. In fact, a person who begins setting aside money early could accumulate more than someone who starts later but makes larger contributions to his or her savings. As a general rule, the longer your money is invested, the greater the returns it can earn. And as the chart below indicates, the amount of your contributions may not be as important as the length of time you save or invest.
Investing for Retirement
As the tables below show, setting aside money at an early age may significantly impact the amount you'll have when you retire. One way to accomplish this is to participate in your employer's 401(k) plan, if available.
A 401(k) program offers you:
- Pre-tax investing
- Ability to contribute small, manageable amounts
- Convenient, automatic payroll deductions
- Diversified investment options to help you manage risk
- Potential to earn returns that exceed inflation or current savings account interest rates
| An Early Start |
| Age |
Contribution |
Annual Balance |
| 25 |
$2,000 |
$2,160 |
| 26 |
2,000 |
4,493 |
| 27 |
2,000 |
7,012 |
| 28 |
2,000 |
9,733 |
| 29 |
2,000 |
12,672 |
| 30 |
2,000 |
15,846 |
| 31 |
2,000 |
19,273 |
| 32 |
2,000 |
22,975 |
| 33 |
2,000 |
26,973 |
| 34 |
2,000 |
31,291 |
| 35 |
0 |
33,794 |
| 36 |
0 |
36,498 |
| 37 |
0 |
39,418 |
| 38 |
0 |
42,571 |
| 39 |
0 |
45,977 |
| 40 |
0 |
49,655 |
| 41 |
0 |
53,627 |
| 42 |
0 |
57,917 |
| 43 |
0 |
62,551 |
| 44 |
0 |
67,555 |
| 45 |
0 |
72,959 |
| 46 |
0 |
78,796 |
| 47 |
0 |
85,100 |
| 48 |
0 |
91,908 |
| 49 |
0 |
99,260 |
| 50 |
0 |
107,201 |
| 51 |
0 |
115,777 |
| 52 |
0 |
125,039 |
| 53 |
0 |
135,042 |
| 54 |
0 |
145,846 |
| 55 |
0 |
157,514 |
| 56 |
0 |
170,115 |
| 57 |
0 |
183,724 |
| 58 |
0 |
198,422 |
| 59 |
0 |
214,295 |
| 60 |
0 |
231,439 |
| 61 |
0 |
249,954 |
| 62 |
0 |
269,951 |
| 63 |
0 |
291,547 |
| 64 |
0 |
314,670 |
| Investment |
$20,000 |
| Earnings |
$294,870 |
| *Assumes an 8% annual rate of return |
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| A Late Start |
| Age |
Contribution |
Annual Balance |
| 25 |
$0 |
$0 |
| 26 |
0 |
0 |
| 27 |
0 |
0 |
| 28 |
0 |
0 |
| 29 |
0 |
0 |
| 30 |
0 |
0 |
| 31 |
0 |
0 |
| 32 |
0 |
0 |
| 33 |
0 |
0 |
| 34 |
0 |
0 |
| 35 |
$2,000 |
$2,160 |
| 36 |
2,000 |
4,493 |
| 37 |
2,000 |
7,012 |
| 38 |
2,000 |
9,733 |
| 39 |
2,000 |
12,672 |
| 40 |
2,000 |
15,846 |
| 41 |
2,000 |
19,273 |
| 42 |
2,000 |
22,975 |
| 43 |
2,000 |
26,973 |
| 44 |
2,000 |
31,291 |
| 45 |
2,000 |
35,954 |
| 46 |
2,000 |
40,991 |
| 47 |
2,000 |
46,430 |
| 48 |
2,000 |
52,304 |
| 49 |
2,000 |
58,649 |
| 50 |
2,000 |
65,500 |
| 51 |
2,000 |
72,900 |
| 52 |
2,000 |
80,893 |
| 53 |
2,000 |
89,524 |
| 54 |
2,000 |
98,846 |
| 55 |
2,000 |
108,914 |
| 56 |
2,000 |
119,787 |
| 57 |
2,000 |
131,530 |
| 58 |
2,000 |
144,212 |
| 59 |
2,000 |
157,909 |
| 60 |
2,000 |
172,702 |
| 61 |
2,000 |
188,678 |
| 62 |
2,000 |
205,932 |
| 63 |
2,000 |
224,566 |
| 64 |
2,000 |
244,692 |
| Investment |
$60,000 |
| Earnings |
$184,692 |
| *Assumes an 8% annual rate of return |
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