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Why Should You Save When You’re Young?

7 years ago

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Why should you save when you’re young? Well, who better to ask than one of Cabana’s youngest? – our intern, Andrew Henn.

Wish to retire early? Who doesn’t? I have always been taught to save as much money as I can – whether it was birthday money, Christmas or graduation my parents discouraged spending and pushed me to save. While the idea has been delivered to me time and time again, I never understood how much it would, and still can, help prepare me for the future. At the young age of 22, still in school, interning here at Cabana and studying finance, I have opened my eyes to the investment world and have come to understand the power of saving and investing my money.

While I was lucky enough to have parents who pushed me to save at a young age, and continue to teach me how to invest it today, now that I am older, I look back and my only regret is that I had saved more.

Not convinced yet? In the graph below, I will show you how the power of time can be one of the biggest advantages for an investor. In sum, I will show you why you, your son or your daughter should start investing NOW!

I have taken the average of Cabana’s Conservative Portfolio performance (our least aggressive or “risky” portfolio) over the last 10 years, which came out to be +8.78%. Although the numbers listed in the graph are not a guarantee of future performance, they do show how the portfolio has performed in the past. These numbers, along with more information on our portfolios can be found at www.cabanaportfolio.com under the Asset Management tab.

Please note: Dependent on your situation and your level of risk tolerance, your portfolio choice and returns could vary.

The below chart serves as a hypothetical investment plan. On the left-hand side, you’ll see that I started investing at the age of 25. If I were to invest $5,000 each year from age 25 to 35 (a total of $55,000), and not invest again, those investments could be worth  $773,844 by the time I am 60 years old (my hypothetical retirement age). Looking at the right-hand side, you will notice that if I started investing at age 35 and continued to invest the $5,000 each year until I reach 60, I would have invested a total of $130,000 and my total return at the age of 60 could be just over $490,511. As you can see when comparing the two scenarios, those ten years can really make a difference – not only when it comes to returns, but also factoring in the total amount of money invested.

If you are thinking about helping your children learn the basics of investing early, or you yourself are deciding if you should start saving some spare change each month, you can and should start today. If you know someone who is just starting their career, please feel free to share this post with them, or connect them with one of our advisors so that they too can reach their financial goals! I know firsthand how important it is to have this knowledge before it’s too late.

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Disclaimers

January 17, 2024

This material is prepared by Cabana LLC, dba Cabana Asset Management and/or its affiliates (together “Cabana”) for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. This material may only be distributed in its original format and may not be altered or reproduced without the prior written consent of Cabana. The opinions expressed reflect the judgement of the author, are as of the date of its publication and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cabana to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cabana, its officers, employees or agents.  

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Past performance is no guarantee of future results. All investment strategies have different degrees of risk and the corresponding potential for profit or loss. Asset allocation and diversification will not necessarily improve returns and cannot eliminate the risk of investment losses. “Target Drawdown” is merely a descriptive term used to describe the general strategy and objective of the portfolio, it is not a guarantee, nor should it be construed to suggest safety or protection from loss. There is no guarantee that portfolio performance will remain consistent with the targeted drawdown parameter. While risk tolerance and targeted “drawdown” are identified on the front end for each portfolio, Cabana’s algorithm does not take any one client’s situation into account and there is no guarantee that Cabana’s strategies will be suitable for any investor. Investors and advisors should not simply rely on the name of any portfolio to determine what is suitable. It is the responsibility of investment advisors to determine what is suitable for their clients. Cabana manages assets on multiple custodial platforms. Performance results for specific investors will vary based upon differences in associated costs and asset availability.  

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Morningstar’s Moderate Target Risk index  follows a moderate equity risk preference and is based on well-established asset allocation methodology from Ibbotson Associates, a Morningstar company.  

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The Nasdaq Composite Index is a market-weight capitalization index that covers more than 3,000 stocks listed on the Nasdaq Stock Market. What is the Nasdaq Composite, and What Companies are in It? | Nasdaq