13 thoughts on “The power of compound interest: why you should start investing today

  1. what did you invest in richard? ive been researching investments that bring better returns than cd’s or money market accounts, but haven’t really fully understood them yet.

  2. Hi Tony,
    After considering my options, I decided to invest in individual stocks. I figured out that safe havens had been exhausted by the timid investors since 2008, resulting in lower-than-inflation yields. My investment goal is to at least beat inflation, and in the current economic environment, only stock investment would allow me to accomplish that. I have strong belief in several individual companies, and I want to learn as much as I can when I am still young and have a long time horizon. So I invested in companies I thought had great upside potential.
    You don’t have to pick stocks like I do; you can invest in an index fund which tries to match the overall trend of the stock market. If the index fund matches the S&P 500, that’s double-digit percentage annual growth!

    1. yeah, i’ve been considering index funds as they have lower risks than stocks. until i have researched and learned enough about stocks, ill have to play it safe.
      Goodluck with your investments. =)

      1. Index funds are not necessarily less risky than individual stocks. Index funds’ risk is stock market risk, and when something like the 2007 crisis strikes, they will go down at approximately the same rate as the stock market. Individual stocks mostly do their own things; they have their individual risks and a little bit of stock market risk. So it comes down to how you estimate each type of risk. If you believe that the stock market will go up in the long run, you should invest in an index fund; if you think it won’t go up, then don’t. If you believe Apple will go up in the long run, you should invest in its stock, etc.
        Thanks! Good luck with your investment strategies as well!

      1. Hey, I have a question. Correct me if I am wrong. I am not sure why you invest in 401k but not roth IRA (or may be you do). For a young person like you, there is a high chance that you will need the money in 401k at some point. If I don’t get this wrong 401k, you can’t take money out until 59.5 years of age. If you do, you will end up paying 10% penalty + ordinary income tax. If you do cash ur 401k on time, the tax bracket in the future will probably is higher than the tax bracket right now. Even through, you earn interest on the deferred tax, will this interest sufficient to cover the tax hit later (tax bracket is lower in this economy???). Is roth IRA better since we pay tax up front, tax bracket now will be lower? In addition, you can take your money out on roth IRA any time (not the interest on the money that you put in there)? Please correct me if I am wrong.

  3. My employer offers contribution matching on 401(k) contributions, and I make the contributions post-tax because I believe that the tax rate at withdrawal will be higher than now, because I think I’ll have other sources of income when I retire (hopefully!) and I think that taxes will go up in the future. I don’t think you can withdraw money from an IRA account, but with an IRA account your investment options won’t be limited to what the company has available to its employees.

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