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Getting started in investing can be a slow and painful grind. It the beginning, it doesn’t even really matter how good at investing you are because the truly hard part is saving the excess cash to invest.
The first $100,000 is the hurdle
Getting started in investing can be a slow and painful grind. It the beginning, it doesn’t even really matter how good at investing you are because the truly hard part is saving the excess cash to invest. This can be even harder for those starting for those starting with nothing and have student loans.
While it is true what they say about the power of compound interest, the reality is that you won’t start seeing the true power until you cross the $100,000 threshold.
Charlie Munger, the right hand mand of Warren Buffet, said this in an interview from 2003:
“Munger has said that accumulating the first $100,000 from a standing start, with no seed money, is the most difficult part of building wealth. Making the first million was the next big hurdle. To do that a person must consistently underspend his income. Getting wealthy, he explains, is like rolling a snowball. It helps to start on top of a long hill—start early and try to roll that snowball for a very long time. It helps to live a long life.”
People always talk about the magic number or the amount the need to retire. That number is usually somewhere in the millions and can seem daunting for younger investors or those just starting out. So, we wanted to write a blog showing you that the first $100,000 should be your initial goal.
Example
John invests $10,000 every year. At a 7% annual interest rate, his net worth will grow to $100k in 7.84 years.
If he continues to invest $10,000 per year at 7% he will be able to save his next $100,000 in 5.1 years.
As you can see by investing the same amount each year John will save each additional $100,000 in shorter and shorter amounts of time. THIS is the true power of compound interest.
No matter where you are on your investing journey working with an advisor can help you achieve your goals. Give us a call today and we can help you build a plan to get where you want to be.
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