Did you ever wonder why the cost of insuring a driver is much higher when you are younger than 25? Did you ever wonder why it seems socially acceptable to take on huge amounts of college debt at a time when you have no income to show for it? And even though President Obama’s health care plan will add those younger than 26 to the roles of insurance policies, you would have to wonder why it took legislation to get to that point?
Risk. Simple as that. The younger you are the bigger the risk. Even the college loans you might have are a risk lenders are willing to take in large part because they know you can’t run or hide from them – and they lend this money in the hope that you will get a job at some point to help with paying them back. The lender may have taken a risk. But the very risk that insurers worry about was assumed by you. quite possibly without much of a concept of what it entailed.
And then, if you are fortunate enough, you make your way into the workforce. And then, if you are fortunate enough, you have a 401(k) to deal with, with any luck right away; with some luck, after you spend some time on the job; with no luck, you have to have the initiative to develop a plan of your own.
And what do you do, in the vast majority of these situations? You do nothing, claim you have no money to invest, or if you do, take no risks. There are basically three things you need to understand about investing (it is not savings) for your future.
First: No matter what sort of economic hardship befalls you and I truly hope that none does, your retirement accounts are safe from bankruptcy proceedings.
Second: You are going to live a long time. Once you breech that actuarial barrier of 25, most folks who predict such things believe you will live another sixty plus years. If that sounds daunting, it is. But it is also a financial opportunity to really do something with your investable dollars (your 401(k) plan, match or no-match with a contribution of 5% will not have any effect on your take-home pay). Sixty years was the old school target for retirement, although done right, living until 80 years does not mean working all of those years.
Third: You will never be able to entertain the idea of retirement unless you embrace risk. Risk allows your money to grow. No risk investments allows your money to grow only at a safer rate of growth. But it is not the growth or the markets that is at play, it is the healing power of time. The argument goes something like this: You invest a dollar and buy a single share of a mutual fund. The next time you make your payroll purchase, the market has lost some of its value for whatever reason and now the share you are buying is worth fifty cents. Now your dollar buys two shares. Then, as markets do, it recovers and your shares are now worth $2. Your dollar now buys only half a share. You have now have two and one half shares valued at $5 when you only paid four dollars. Now imagine sixty years of this sort of average, gain, loss and steady investment in this sort of chaos.
These are the risk years. The ones where you can take advantage of chance, turn it to your advantage and grow your money. There are no guarantees that there will be more up-markets than down. If history is any indication, and these days, history seems to writing itself on a much more frequent basis, there is a greater possibility that bull markets will occur more times than not.
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