Invest As Much As You Can Now, So You Will Have Options Later

by Ryan Guina

Over the last few weeks the worldwide markets experienced a major correction. Trillions of dollars of wealth was erased from ledgers. While I feel for those who are at or near retirement, and as much as I hate seeing the lower numbers in my retirement account, this has motivated me to invest more money.

One reason I am motivated is because the markets are substantially lower, and now may be a good time to increase retirement contributions. The other reason I am motivated is because I know that the more money I invest now, the more options I will have later in life.

Compound interest is an extremely powerful force and the longer my money is working for me by compounding, the less I will need to add to it later in life. My ultimate financial goal is retirement, and I want to ensure I get there with as little stress as possible.

Two biggest retirement questions: When can you retire and how much money do you need for retirement?

Unless your retirement is in a few years and you have a strong handle on your finances and expenses, these two questions are extremely difficult, if not impossible, to answer.

When can you retire? Because of this global financial crisis, many people have delayed their retirement date because their retirement accounts lost too much value. Many people simply cannot afford to retire right now. This isn’t the first time this has happened either – the same thing happened when the tech bubble burst in 2000, which was compounded by the market drops following the September 11th attacks. Before that, the market crash in 1987 delayed retirement for many people.

Part of the problem for many people was poor asset allocation. But even a portfolio with a strong asset allocation can be affected by a bad bear market and the owner may have to delay retirement. But the more you have stashed away for a rainy day and the better your asset allocation, the better you will be able to weather a bear market.

How much money do you need for retirement? Many people create formulas to answer this question.

If you want to retire at “x”% of your current income you need to save “x” dollars per year.

But all of that is just guesswork and makes assumptions on predicted inflation, return on investment, etc. My retirement is 30 years from now and to be quite honest, I don’t think it is possible to make an accurate guess as to how much money I will need – at least not until I am much closer to retirement age.

Invest as much money as you can invest NOW

My solution to both of these questions is to invest as much as I can comfortably invest now, so that I have more options later. The younger you are, the longer you have for the power of compound interest to work in your favor. It is much easier to answer the question “how much money can I contribute now?” than it is to answer “how much money will I need and how much money do I need to invest to get me there?

My retirement is as of yet an unwritten book. I don’t know when I will retire or how much money I will need in retirement. But I do know that the more I invest now, the less work I will need to do later, and the better off I will be in the long run.

Published or updated February 7, 2009.
Print or e-mail this article:

{ 11 comments… read them below or add one }

1 Ryan

Thanks, Miranda. I agree and have upped my contributions. I think I may add a little extra to my non-retirement accounts as well. 🙂


2 BloggingBanks

This is a very good article actually. It is true that investing in the stock market might work out fine over the next 3 decades. I wouldn’t rule out fixed income investing either ( bond mutual funds, certificates of deposit, bonds). Even a modest 25% allocation to fixed income would have smoothed out the volatility in your portfolio this year.
Anyways I would think that you could retire when you could easily make enough in interest income or other income that covers your highest expenses 1.5 times.


3 Miranda

Thank you for this great post. I have been saying that now is not the time to panic and completely pull out. It is the time for reason and carefully chosen investments that are likely to recover later. There are some great bargains out there.


4 Moyo

Great post, I’m 100% with you on this one, I wrote a post with a similar message about 2 wks ago.

Not that the market has bottomed, but the point here is that with increased acquisitions of investments at this point, overtime one can accumulate quality stocks that will pay off good!

If interested the post is titled -In response to: “What to do now”- on my blog. I talked about AAPL, EXC and POT as good picks!


5 Moyo

I guess the key thing is let’s hope the big shots don’t make the stupid mistakes they made…given the fed’s reaction to the current turmoil, we can’t be too sure it wont happen again soon.

Really the big question is where is the next bubble going to be? we’ve seen dot com, housing which also triggered the financial sector burst, what’s next?


6 Steward

I think that picking the right stocks now is a good idea, but broad-based index investing could be a little premature if things continue to decline, which I think they might. I could be totally wrong and things could rebound rather quickly, I just have a feeling like things will stay bad for a little while.


7 Donny Gamble

The more money that you invest right now during this period of time where stocks are cheap, the more it will benefit you in the future. I don’t think this opportunity will come again in a long time.


8 Ryan

Donny: I think you may be right. I’ve got my 401(k) plan maxed. I’m hoping stocks stay low into the new year so I can do a lump sum for my Roth IRA and take advantage of these lower stock prices.

Moyo: No idea what the next bubble will be. I plan on maintaining a strong asset allocation, which will hopefully be able to weather it well.

Steward: You may be right, but I’m no whiz when it comes to picking individual stocks. I think it will stay bad for awhile, but that means a longer buying opportunity if you are in it for the long haul (like I am).


9 Cash is king

I agree that the stock market can eventually recover but in the short-term, the direction is still downwards. If you want to stay safe, money markets would be the place to park your money in spite of its piddling 3-4% interest (4 is more for 1-year CDs).

I got weird vibes in the stock market back in early 2007 and I did precisely that – parked my money in CDs and money market accounts. Very glad that I did. The time will come when that savings goes back into the stock market but you gotta have faith first. I don’t have that in the short-term.


10 Ryan

Cash is King, I didn’t move all my equities into cash equivalents, but I did open a CD ladder last year, which should help smooth my returns. Thanks for the comment.


11 Smart Money

I’ve been reinvesting all my dividends into buying additional stocks and also injected a lump sum into my superanuation retirement account during that period, which in hindsight was a great move that I made.

Humans are greedy and fearful, at the same time. This ensures that cycles of boom and bust will occur in perpetuity.

Ryan, with 30 years to go, sit back and relax in terms of your portfolio value fluctuating. I’ve got over 3o years to go before I’ll be in my sixties as well, so I never once panicked or worried over my fluctuating investment values. Just kept on enjoying life as if nothing had happened. (I must confess though, that I did liquidate 50% of my share portfolio in 2007 after the Bear Stearns incidence and the trickle of bad news from the US … so maybe that’s why I didn’t worry too much!)

Asset allocation and diversification are one of the most important aspects of finance to understand. A lot of retirees and almost retired have lost out big time in this credit crisis because of poor asset allocation.


Leave a Comment

Previous post:

Next post: