Chapter 1 Planning Your Financial Future: It Begins Here
17
Growth
Most people invest hoping for growth, or increase in value, of their
investments over a period of years. Investing for growth is not a “get rich quick”
scheme, but it is a simple plan for building wealth. Because most investments are
not guaranteed, there is risk involved. Money placed in a savings account is insured
for up to $250,000 per account by the Federal Deposit Insurance Agency (FDIC).
The FDIC is an independent agency of the United States government. This type
of investment is considered very safe. However, when interest rates are low, the
investment will have low growth. Other types of investments, such as buying
stocks in a company, may provide higher growth. These investments can be risky
since there is no guaranteed rate of return as with a savings account.
Although it is never too late to start planning for fi nancial independence, teen
years are an ideal time to begin investing. Figure 1-1 shows two amazing examples
of why it is important to begin investing at an early age.
In example A, suppose you invest $2,000 a year for 10 years starting at age 19.
Then you stop investing money. The money grows at a rate of 10% per year. At
age 65, you will have $1,083,959. That’s more than $1 million from your investment
of only $20,000. WOW!
In example B, suppose you begin at age 28 and invest $2,000 per year
until you are age 65—a total of 38 years. At the same rate of 10%, you will have
$728,087 from an investment of $76,000. This is still not bad, but check the
math. You have invested $56,000 more and end up with $355,872 less.
To benefi t from your investments later in life, start investing when you
are young. Keep investing as much as you can even when doing so is diffi cult.
You’ll be glad you did!
Check
Your
Understanding
What does the word growth mean as it relates to investing?
Example A Example B
Annual investment for 10 years $2,000 Annual investment for 38 years $2,000
Investment period 48 Years Investment period 38 Years
Annual earnings rate 10% Annual earnings rate 10%
Total investment $20,000 Total investment $76,000
Final amount $1,083,959 Final amount $728,087
Investment examples.
Figure
1-1