Compound Interest on Investments Can Beat Inflation > Spokane Journal of Business
As an advisor since 2006, I’ve had my fair share of questions about “why invest?” I’ve no doubt shown clients these charts of compound returns over time, S&P turning $10,000 into $20,000, and then how, with a little help from dollar cost averaging and some input over time, one can retire with a few million dollars. in the bank.
My experience has shown me that showing graphs and trying to paint a picture of your future is easily lost over a mid-twenty or thirty year old. Yes, everyone knows retirement is important, but they have things to do now…kids, travel, buying a first or second home, and maybe a job change. It’s true. It is now, and it is right in front of them.
Today we find ourselves in the midst of one of the biggest supply shocks we have seen in decades.
The argument the Fed currently has among itself is whether the corresponding price pressure is transitory or structural in nature. Whether or not this spike in inflation is here to stay – although I would say some of it is here to stay – the day has finally come and stares us in the face as to the importance of compounding. It is no longer necessary to discuss it with customers in terms of something important in the future.
Have you tried remodeling recently? Not only is it hard to find a contractor, but the materials are so far away or their costs are so high that you’re looking at about a 30% to 40% increase year over year. Do you want to buy a bike and hope for a good deal? That doesn’t happen, assuming you can even find one.
I am currently building a bike rack for an old caravan that my wife and I are remodeling, and some square rubber blocks that we need to complete the job are out of stock. What?!? Since when can’t you buy almost anything at any time? We were trying to get blinds cut for the trailer and Lowe’s was unable to get a new steel blade for their cutting machine due to supply issues.
Oh, and have you even thought about buying a house recently?
Now, if you’ve invested and compounded your money in the stock market for the past decade, you’ve probably made returns in excess of 10% per year.
And while these returns wouldn’t have solved all of the supply chain issues, they would certainly go a long way in helping you afford things that suddenly cost a lot more than they did just a few years ago.
If you haven’t, it’s never too late to start. My heartfelt recommendation to start saving money now in an investment account for other future needs that will almost certainly accumulate on their own.
This is one of the main reasons why the beauty of compound returns matters: inflation is real. And while, like you, I may not be taking advantage of these new higher prices, I cherish this moment when I don’t have to point to a prepared chart on a reality 30 years from now to say, “This is why I invest,” and I hope someone starts their investment journey as soon as possible.
Dave Gordon is director of retirement planning at Ten Capital Wealth Advisors LLC in Spokane. It can be reached at 509.325.2003, and [email protected]
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