When people find out at social situations that I’m a financial advisor, they often say one of a few predictable things. First they ask semi-jokingly if I recommend the meme stock of the day. My answer is always a polite smile and a firm ‘no’. Then they’ll go one of two ways.
People that are investing their money ask about the market or what they should be investing in. Or, they tell me all about the successful investments they’ve made– they always lead with the successes– sometimes followed by a few they wish they had or hadn’t made.
What do people who are NOT investing their money say?
“Gee, I wish I had enough money to start investing*.” [Looks down at floor and smiles awkwardly.]
“My financial life is too much of a mess to hire a financial advisor right now, but some day…” [Trails off and changes subject.]
Imagine that you’re a personal trainer at a local gym and someone comes up to you and says, “gee, I’d sure like to lose weight/get stronger, so when I do, I’ll look you up.”
Why would you wait until you’ve already accomplished your goal to reach out to the person who can help you accomplish that goal? When has continuing to procrastinate helped you achieve something?
The people who aren’t investing and taking care of their financial lives are the very ones who need to start investing today, and they probably need a push from a trusted advisor.
If you haven’t motivated yourself yet, get someone who will
Be honest with yourself: are you putting off improving your financial life? Most of us are in this boat on at least one major area in life. I’ve been putting off getting into better shape and starting some important home renovation projects for years. Bringing on someone that IS motivated to help you– and will hold you accountable– is key.
60 second quiz to rule out bad free advice
If you’re not hiring a fiduciary, independent advisor like me–and for God’s sake do NOT hire a commission-driven scoundrel— make sure the ‘free’ help isn’t going to cost you an arm and a leg down the road. Give your generous friend or family member this three question quiz:
- Are you maxing out your own retirement savings accounts (401k/IRA)? The answer you want to hear is ‘yes’, or at least ‘not yet, but I’m working on it by increasing my contributions every year’. If they start telling you why some other scheme they have is a better investment than their own IRA or 401k, run the other way.
- What is the vast majority of your long-term savings invested in? The correct answer here is low-fee stock index funds, which includes my favorite, Target Retirement funds. Bad answers include real estate, gold, crypto/Bitcoin, and meme stocks.
- Do you carry any credit card debt from month to month? The right answer is ‘no’.
Three correct answers means your friend is probably ok. Take them up on their offer to help and schedule a meeting with them! One or more ‘wrong’ answers means politely declining their offer of help and finding another friend, or better yet, hiring me.
Bonus reason to start today: early investors have way more money later
Investing early–even with only a little bit– lets compound interest work its magic to the fullest. Consider two investors:
- Proactive Patty saves $1,000 a month starting at age 30 and stops at age 60. The $360,000 total that she’s invested will be worth $832,000 in today’s dollars if it grows at 5%, a gain of over $470,000.
- Procrastinating Pete waits until he’s 50 to start investing, but saves $3,000 a month, triple Patty’s monthly savings, and also stops at age 60. He’s also contributed $360,000 total, but it’ll only be worth $465,000, a gain of only $105,000.
Patty will have almost double the money as Pete just because she started earlier, and her investment gains will be 4.5x that of Pete’s, even though they both invested the same dollar amount earning the same annual return, just because she started earlier. Start being Patty today.
How about a real example of the power of compound interest from my investments?
I’ll show you a graph of my family’s investment performance over the last 10 years to further illustrate the point. The y-axis is the dollar value of our accounts (the numbers are hidden), and the x-axis is the calendar year. The height of the total = my total account balance, the green = my investment gains as a portion of the total, and the blue part by itself = the cumulative dollars I’ve been contributing into my 401ks, IRAs, and regular brokerage accounts.
You can see that at the very beginning, the green gains part is only a small fraction of my total, but over time it’s grown to be almost half of the value of my account. If you looked further back in time, the ‘gains’ would actually be losses since I invested before and during the Great Recession of 2008-2009, but over time, the stock market recovered (and how!) and has helped me nearly double all the money I’ve put in so far.
You can also see that while I’ve continued to contribute (the blue piece keeps getting taller), I’m finally getting to the point where my investment gains (green) are outpacing the contributions I’ve been able to make. This is the virtuous ‘snowball’ of money-creating-money that’s given me financial independence at age 38.
*I think part of the perception that you need a lot of money already saved up to benefit from financial advice is because people think financial planning is mostly about investment management. This is totally false. Good advisors focus a lot of attention on spending and saving, avoiding taxes and investment fees, cutting costs without cutting lifestyle, debt payoff, insurance optimization, estate planning, as well as investing.