This seems to be one of the most common questions I have asked to me on a regular basis. It’s certainly a fair question and one that’s probably gone through my head a few times.
Now that we live in more of an “instant gratification – what have you done for me lately world” we expect to see results immediately. While there are times you’ll actually notice faster growth within your investments because of a specific sector or company, for the most part it’s basically like watching a tree grow.
It’s not really exciting to invest for your future and it’s even harder to see what the future might look like in 20–30 years. We all live in the here and now and want to see those instant results. With that said, let’s take a look at a few of the reasons why it never seems like your 401k is going anywhere.
However, you’re not alone. Everyone had to start at zero at some point. Warren Buffett started at zero. Bill Gates started at zero. Mark Zuckerberg started at zero.
Literally, every successful individual who has accumulated wealth started from zero. The hardest part is just getting started and then actually being able to see what your 401k will look like 20, 30, 40 years down the road.
8% a year is a return that just about anyone would be pleased with over a 20 year period. However, when you have $50,000 in your 401k, 8% growth doesn’t seem like a whole lot.
Thus comes the power of compound growth. Compound growth in the first ten or even twenty years doesn’t amount to much. These are the years where you have to put your head down and just keep contributing.
You truly don’t start to see the beauty of compound growth until a good 20 years of saving. Then you’ll finally start to see things start to blossom. Check out the chart below from Get Rich Slowly.
From investing $5,000 a year with an 8% return, it takes nearly 25 years to get to $500,000. That’s a long time! However, it takes less than 10 years at that point to get $1,000,000 and then only about another 4 years to get to $1,500,000.
It is a slow ride, no doubt. But it’s a ride you don’t want to miss out on even if it’s driving you a little crazy that you don’t think your 401k is growing fast enough.
I know we all want everything right here and right now. But, it truly doesn’t work that way when it comes to investing. The best investors in the world are extremely patient. As Warren Buffett says, “The stock market is a device for transferring money from the impatient to the patient.”
You must have patience. Investing takes time. To be honest, it’s not really exciting most of the time. As much as Hollywood or CNBC try to hype it up, it's really pretty boring if you're doing it the right way.
Your plan hasn’t changed, rather it’s more likely outside influences that have caused you to question your plan. If your goals haven’t changed then there’s no reason why your investments or the amount you’re contributing needs to change either.
Your goals should dictate how you invest, not CNBC or business colleagues. Have a plan and follow through with it. Distractions will come. Assess them as necessary, but don’t veer off course.
Everything I’ve written can be applied to any investment account, not just your 401k. Also, everything I’ve mentioned here isn’t easy. If it were, we'd all be great investors. However, we're human beings and we want to see things move much faster.
Anytime it seems your 401k isn’t growing or you want to go down a different course, come back and read this. I guarantee that your future self will thank you.
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NextGen Wealth, LLC is a registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities product, service, or investment strategy. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, or attorney before implementing any strategy or recommendation discussed herein.
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