August 9, 2014
DEFINED CONTRIBUTION, NOT BENEFIT:
Starting Small: Millennial Investors Learn the Power of Compounding (Danielle Maddox Aug. 6, 2014, US News)
To take advantage of compound interest and receive a substantial return on your investment, Kaplan says you should invest as early as you can and for decades. That way, your nest egg can withstand market corrections."Even though some [millennials] might feel a little stunned by what happened in 2008, those sorts of market dislocations actually happen about twice a decade. You have to take on risk, and in return for that risk, we're rewarded by making a nice return," Kaplan says.Millennials have an investing advantage because they have decades until retirement, she adds.Even if those first contributions are small, they become significantly larger over time through the power of compounding, Moore says. "I saw the charts, and I had to run the calculations myself because it almost doesn't sound believable until you run the numbers."Shane currently contributes 5 percent of his annual income to his 401(k). For his IRA, he plans to make one contribution annually of just below the maximum an investor can deposit. This year, it's $5,500.Following her parents' initial contribution, Radaj says she began putting $20 at a time into her IRA because she could not afford to contribute more."Start with a small amount of money," Moore advises. "If you start with a small amount today, it's the same as starting with a large amount of money in the future."According to the Securities and Exchange Commission's compound interest calculator, if you start with $1,000 and contribute $200 monthly, assuming a 7 percent average annual return, your investment will grow to nearly $500,000 in 40 years.
All the Third Way does is exploit the genius of compound interest: invest government money in these accounts while they're young and they'll means-test out of government welfare when they're old.
Posted by Orrin Judd at August 9, 2014 7:48 AM