Compound interest works wonders for the average investor. Leveraging time to increase wealth is one of the few things almost anybody can do to significantly improve their net worth. But there are many more reasons to start saving for retirement at your first job that go beyond the magic of compounding. Here are a few additional reasons you shouldn't delay investing for retirement:
Saving money gives you more options. Starting to save early is likely to give you more money upon retirement, but it also makes you wealthier throughout your entire life. Having money in the bank allows you to better weather problems and take advantage of new opportunities. For example, someone with a significant savings cushion can immediately go into business if an opportunity presents itself, while a struggling worker living paycheck to paycheck will probably have to pass, even if the odds of business success are extremely high.
A greater ability to recover from investment losses. Many retirement savers feel the need to tinker with a few different investment philosophies that may or may not end up building wealth. The consequences of picking bad investments or incorrectly attempting to time the market can be dire if we do this late in our career. However, if you start investing young, when your portfolio is small, you can limit the damage while finding out the strategy that works best for your situation.
You won't have to base your career choices solely on compensation. Some people are working at jobs they don't like only because of the financial compensation. However, if you begin building a cash cushion early, you can begin to choose a profession based on other factors than the paycheck. You could find that working at a job you enjoy more will help you earn more, or come to realize that the ability to have fun at work is more important than money.
Ingrain solid habits before the numbers become enormous. The investment decisions you make when you first start out will matter much less than the ones you make towards the end of your career because the numbers are much smaller at the beginning. However, the discipline that you can develop during this time can help you out tremendously when the numbers do grow to a significant amount.
Not everyone will instantly understand the advantages of asset allocation, diversification, and staying the course when times look dire. Those who start early will have more time to learn and appreciate these concepts and how they help build wealth over time. Learning how to invest and deal with volatility in the stock market as early as possible will help you to be better prepared for retirement at the end of your career.
David Ning runs MoneyNing, a personal finance site that shares money moves you can make to significantly increase your chances of having a comfortable retirement. He likes to share simple changes that anyone can make, such as picking the best online savings account and figuring out whether a 0 percent balance transfer credit card makes sense.
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