Why are we so diligent at making our car and credit card payments, but the first thing we sacrifice is our investment savings?
I have, for quite a while, thought about the importance of this article’s message, but I had one of those moments a few days ago that motivated me to put pen-to-paper. An employee of a client emailed me saying that she, at 45 years old, has no savings and has realised that she needs to start doing ‘something’.
She asked for some ideas. Of course, my job is to give her some decent investment advice, but it wasn’t easy telling her that at this point in her life she would probably need to save more than 50% of her net income if she wanted to stand any chance of retiring (at age 65) with some parity regards to her current lifestyle.
If I ever had a second profession I would think about psychology, largely because I’m fascinated with the concept of why humans know something is good for them but act in contradiction to that knowledge. A good example of this is how we know that investing works best with a long-time horizon and isn’t affected by short-term movements in the market, but still buy and sell at the wrong time.
Following on from this thought, here’s a summary of returns over various periods (data to March 22 2019) to illustrate the benefit of staying the course: