The Recipe for Investment Success: Time, Money…and Discipline

Need a new holiday recipe? Mix together equal parts time, money and discipline and let it simmer. You'll be rewarded with a nice dish of savings

I have repeatedly stressed the importance of three basic ingredients of saving for investment: time, money…and discipline.

The more time you spend saving, the greater your potential reward. That comes as no surprise. And the more money you save, the greater your potential reward. But without discipline, the simple act of tucking money into your savings account every single month, you WILL fail to achieve your optimal goal.

That’s not a criticism, that’s just a fact.

We’re addressing two very important concepts here: (1) The Time Value of Money and (2) The Amazing Power of Compounding – concepts that are inextricably linked. Let’s use a simple example. If you save $100 per month for 45 years and hide it faithfully in a can buried in the back yard, you’ll end up with $54,000 at age 65, a tidy sum. However, if you save $100 per month and invest it in a low-risk, tax-advantaged investment account (a Roth IRA) paying 7%, compounded monthly for 45 years, you’ll end up with $384,000 at age 65.

Money held as cash, uninvested, has no worth beyond its moldy face value regardless of its time spent in the can (I could mention that it actually loses purchasing power due to Izzy the Inflation Monster but that’s a blog for another day). The same money invested at 7%, compounded monthly for 45 years clearly indicates The Amazing Power of Compounding over time. That’s why discipline is so important in any saving and investment strategy.

Save early, save often, do it without fail, and do a good job of investing it wisely. And please…please…avoid dipping into the till along the way.