The Effect of Time on Your Investments
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[On Screen: Lauren Sanfilippo]
Please read important Information at the end of this video. Recorded 11.02.2022
Hi. Oh, am I going? Sorry .
Hi, I'm Lauren Sanfilippo, Senior Investment Strategist with Bank of America's Chief Investment Office.
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Lauren Sanfilippo
Senior Investment Strategist, Chief Investment Office
Merrill and Bank of America Private Bank
A lot of people ask me, when's the best time to start investing? In my opinion, as soon as possible!
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When Should I start investing?
ASAP!
Early in your career, when every paycheck feels stretched, it's easy to tell yourself: I'll invest in a few years when I'm earning more.
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"I'll Invest in a few years ..."
But when you begin investing to help meet your goals for all the things you want to do later on—like buying a house, starting a family, educating your kids, or retiring to your dream location
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Buying a house
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House
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Starting a family
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Baby carriage
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Educating your kids
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Graduation cap
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Retiring to your dream location
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Location pointer
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Start Early
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Clock winding
—the most important thing you can do is to start early, even if you've only got a little to put away at first.
It's all about the power of compounding.
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It's all about the power of compounding.
Compounding happens when your investments produce returns such as stock dividends or interest on bonds or money market funds, which you can then reinvest.
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Investments
Contribute
Reinvest
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Big White bubble with word investments
Red bubbles with word contribute flying into the white bubble
Red bubbles with word Reinvest flying into the white bubble
As you keep contributing and reinvesting—just like the snowball effect—momentum can really build.
Let's take a look at how this can work over a lifetime of investing.
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What might happen if you invest $50 a month from ages 20 to 60, with a 7% annual return?
Graph starts at "starting at 20 years old" and grows up past "After 20 years" and up to "after 40 years"
Total contributions numbers rise as it moves up the chart; Total return rises as it moves up the chart.
[Disclosure] This is a hypothetical example for illustration purposes only. Had a different growth rate been used in the example, the results would vary. No rate can be guaranteed.
Let's say you're 20 years old and decide to invest $50 per month in a hypothetical investment with a 7% annual return.
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Text: $50 per month from ages 20 to 60
Bar graph:
White box with blue text $120K - Total Return
Blue box with white text $24K - Contributions
[Disclosure] This is a hypothetical example for illustration purposes only. Had a different growth rate been used in the example, the results would vary. No rate can be guaranteed.
At first, there's not a huge difference between what you invest and what your total return looks like, but as the years go by, see how the lines diverge?
By age 60, after 40 years of steady saving and reinvesting, your $24,000 of contributions could return nearly $120,000.
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$50 per month from ages 20-60
White box with blue text $120K
Blue box with white text $24K
[Disclosure] This is a hypothetical example for illustration purposes only. Had a different growth rate been used in the example, the results would vary. No rate can be guaranteed.
Now let's look at the potential cost of waiting.
Say you wait until you're 30, meaning you'll invest for 30 years instead of 40. Your income is higher, so you invest $100 each month instead of $50.
Even though your contributions are higher, coming into a total of $36,000, your money has less time to grow, producing a return of a little over $113,000.
[Graph on Screen]
$100 per month from ages 30-60
White box with blue text $113K
Blue box with white text $36K
Let's say you start at 40. By now, you can put in $200 per month, but your total contribution of $48,000 over 20 years gives you just a little over $98,000.
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$200 per month from ages 40-60
White box with blue text $98K
Blue box with white text $48K
In other words, you're contributing twice as much money as you would have by starting at 20 for a total return that's more than $20,000 lower.
Now, of course, this example is hypothetical. All investing carries risks and fees. Unlike a bank account, an investment account is not FDIC-insured or bank guaranteed and may lose value.
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All investing carries risks and fees
Not FDIC-insured or bank guaranteed
May lose value
But if you step back and look at what happens over a lifetime of investing, markets historically have produced steady growth.
That means, even factoring in the risks and uncertainties, starting early and investing steadily over time gives your money the potential to build and grow.
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Starting early and investing steadily over time
Gives your money the potential to build and grow
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Seeds into a planters pot, begins to grow into a tree
So starting with that base and increasing your contributions as your pay goes up can give compounding even more momentum.
So why not start now? Set aside a few extra dollars, give it some time, and get your investing off to a great start.
Is that good? Yeah, this is just like my apartment. I don't even have a chair, I have a couch.
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Bank of America
What Would you like the power to do?
Merrill
A Bank of America company
[On screen disclosure]
Disclosure:
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.") .
Investing involves risk, including potential loss of principal.
Investment products:
Are Not FDIC Insured |
Are Not Bank Guaranteed |
May Lose Value |
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