Of all the questions I get asked about investing, one of the most common—especially from young investors—is “When should I start?” This is a great question because how you start something matters. If a sports team gets early points on the board, it puts them in a stronger position to get an important win. If you sit down for a meal, your waiter is friendly, and the starters are good, you can be more confident that you’re going to enjoy your evening. The same applies to your wealth management.
Here at Julius Wealth Advisors, we use the following formula to help achieve financial freedom:
Time + (Discipline)2 = Financial Freedom
The components of this formula (Time, Discipline and Financial Freedom) when broken down, are actually the three most important reasons why we believe you should start investing early. So, if you’re ready to start your wealth management journey, but you’re uncertain when you should start, let’s begin.
1. Time is Your Friend.
A lot of people think that it’s tough to become a millionaire, but they still aspire to achieve this goal at some point in their lives—mainly, retirement. So let’s use this goal as an example with three people—Eager Eddie, who is 25; Coasting Carl, who is 40; and Slacker Sam, 55—all of whom are hoping to retire at 65 with a million dollars.
If Eager Eddie started investing today and was able to save $1,000 a month for 40 years, he would need a real rate of return of at least 7.4 % (adjusting for the erosion of 2.5 % for inflation and 1.5 % for taxes) to achieve the millionaire goal in today’s terms. For Coasting Carl, if he starts at the same time, the required rate of return jumps up to 12.9 % to achieve this goal. Slacker Sam, starting at 55, would need a 47.6 % rate of return to hit that magic number. Given the historical return on the S&P 500 has been close to 12 %1, Eddie and Carl have a fighting chance to make millionaire status. However, Sam, sorry buddy. If someone tells you they can achieve a consistent 47.6 % return on any investment, please run the other way, as it’s a major red flag in my opinion.
The more time you have, the more flexibility you’ll have to achieve your goal.
This is the power of time. It allows you to start small and build over a longer period. It’s important to note, however, that the amount of money that you put away is going to have a greater effect than time, which leads us nicely into reason number two.
2. It’s Easier to Form Habits When You’re Young
I’m sure you’ve heard the saying that old habits die hard at one point or another. This was likely used about something negative, but the truth is that applies to positive habits too, like creating sustainable wealth. When it comes to building wealth, time may be your friend, but discipline will be your best friend. All the time in the world can be wasted without a disciplined structure. It’s tough to build a habit when you’re younger, but I promise you, it’s a lot harder to do when you’re older.
Let’s go back to our friends Eddie, Carl and Sam. If Eddie starts saving at 25 and is disciplined with putting this money away each month, it should become easier with age as this mental muscle has had time to develop. It’s also fair to assume that Eddie’s earnings will increase with age and, therefore, his lifestyle and habits can grow around his disciplined savings habit. It may be tough at first, but it will potentially get easier. For Slacker Sam, however, starting at 55 may not be so simple. She may be what we call a HENWY (High Earner, Not Wealthy Yet) with a great salary, but she may have also grown accustomed to a lifestyle that the majority of this salary is spent on. This could be anything from too large of a home, overly extravagant clothing, and/or excessive indulging in her spare time as she believes she’s entitled to do. Suddenly reducing her available cash by $1,000 a month will be harder as there will be a lot of changes that come with that. Never mind the ~$7,100 a month she will need to put away to get in the ballpark of the 7.4 % return Eager Eddie needed above.
This is part of why we offer behavioral coaching, so we can help protect your “blindsides” and help you to keep your discipline, no matter what surprises may appear along the road to your financial goals.
3. You Can Achieve Your Actual Financial Goals
Everyone talks about saving for retirement, but let’s be honest, retirement really isn’t all it’s cracked up to be. It has even shown it can cause health problems like dementia2. So what’s the alternative? What’s the point of grinding away in 9-5 jobs every day if there is nothing good waiting for you at the end?
Life is too short not to live on your own terms, which is why financial freedom is empowering. Financial freedom can be whatever you want it to be. It could be starting your own business, working two days a week, taking an extended break from your career to travel the world—it’s up to you. Not only is financial freedom real, but it also can be achievable by applying time and discipline to your wealth management.
I can say this so confidently because this is the path that my grandfather walked and the same path on which he educated me. It’s the path that took me from graduating college with $50 in my bank account and $30,000 of debt to a net worth over seven figures in 18 years. It’s the very same path we walk every client along here at Julius Wealth Advisors.
Setting money aside each month and being disciplined can be difficult—believe me, I know. It means sacrifice and compromise and making tough decisions on occasion. But, instead of asking yourself when you should start, ask yourself what would be more difficult: starting your journey to sustainable wealth one step at a time with consistent disciplined habits, or arriving at your pre-prescribed retirement with nothing after having wasted your time and money?
It’s never too late to start, but the sooner you do it, the easier the journey will be. Get in touch with us at Julius Wealth Advisors today.
This piece contains general information that is not suitable for everyone and was prepared for informational purposes only. Nothing contained herein should be construed as a solicitation to buy or sell any security or as an offer to provide investment advice. Past performance does not guarantee any future results. For additional information about Julius Wealth Advisors, including its services and fees, contact us or visit www.adviserinfo.sec.gov.
Jason Blumstein, CFA® is the CEO and founder of Julius Wealth Advisors, LLC (www.juliuswealthadvisors.com) and a registered investment adviser. He is also the host of the Big Bo $how podcast available on Spotify and Apple podcasts. Jason has been investing and educating himself on personal finance since the age of 10. His company’s mission is to empower people to live their best financial lives while fostering an ecosystem of integrity, knowledge and passion. Jason resides in Englewood with his wife and two children. He can be reached at (201) 289-9181 and/or [email protected].
1. S&P 500 Average Return – Investopedia.com
2. ‘Use It or Lose It’: Why Retiring Early Can Increase Your Risk of Dementia, Healthline.com