If we could teach our girls only one thing about investing, it would be this.
Last month, Sara reunited with some of her basketball friends playing in the Austin Women’s Basketball League:
The last time she was able to play basketball in person with them was the week of March 12, 2020, just before her twice-weekly games were shut down due to Covid.
A lot has happened with us all since then. One friend asked if she could put us in touch with her daughter, an impressive young person who decided to join the Navy after graduating from high school. Her enlistment bonus was larger than either of them had expected, and Sara’s friend wants her child to learn how to invest, asap.
When we teach classes about investing, or chat with parents about teaching kids about money, one of the questions people ask us is: “What are you teaching your daughters about money and finance?”
Hands down, the most essential financial concept all of us should know is the power of compounding.
“Compounding” is the way investments grow over time. But it needs a lot of time. In fact, the most important element in the compounding process is TIME, not money. Don’t misunderstand us, money is also very important, but without time, there’s no compounding.
There are plenty of mathematical formulas that we use to describe exponential growth, but you don’t need to get out the graph paper to understand the concept. The way I think about compounding is: How many times can you double your money before you need to start making withdrawals?
For example: If we expect the value of an investment - let's say a stock - to double every 10 years, and you’re invested from age 25 to 65, your money will be invested forty years: four rounds of doubling. One dollar invested turns into two, turns into four, turns into eight, turns into 16.
If you start later and you only have 20 years of compounding, you go through that doubling cycle only twice. Starting later means you have to save a significantly bigger chunk of money to get to the same point as if you had started earlier with much less money. Finding that additional savings is what we focus on as part of the financial planning process.
So, when people who haven’t started investing yet ask for our secret strategy, they may expect a complicated playbook with ticker symbols, market trends and tax loopholes. But we always tell them the same thing: The best system to earn money for the future is the system that will get you into the market today. When it comes to investing, the best move is always the one that you can start now, no matter how simple. There will be plenty of time later to refine your strategy, update your goals, and increase your contributions.
If this is overwhelming, don’t worry… you’re in good company. Over a quarter of Americans over 59 haven’t started investment accounts, and about 50% of women ages 55 to 66 have no personal retirement savings, compared to 47% of men. But you can, and you will. Here are some ways to get assistance:
Make an appointment with BBF to map out your strategy
Join the Austin Women’s Investing Group to learn more
Listen to Sara’s podcast for financial beginners, Women on the Verge of Financial Breakthrough