Money Now? Or Money Later?
Over time, the worth of specific fiscal amounts can change — even if it is the same exact amount. As someone that is considering investing in their future and planning for their retirement, it is important to consider the time value of money, among other things as you investigation — all of which you can get assistance with from an iInvest® registered investment advisor.
The three most important things to think about when considering money’s value over time are:
1. Time Value of Money
2. Dollar-Cost Averaging
3. Power of Compound Interest
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“When you start saving money outweighs the amount of money that you save.”
Breaking Down Time Value of Money (TVM)
Calculating the time value of money is important. Basically, as long as you can earn interest, you’d rather have a dollar today instead of a dollar one year from now. If you receive that dollar today and the interest rate is 5%, one year from now you’ll have $1.05, and that’s certainly better than a dollar. This idea becomes even more important for individual investors and businesses when thousands or millions of dollars are involved.
This is why the iInvest® Team stresses the importance of young people starting early, no matter your age or how much you begin with. Just get started!
What is Dollar-Cost Averaging? (DCA)
Dollar cost averaging is a stock purchasing method in which a person buys a fixed dollar amount each period (weekly, monthly, or quarterly, etc.) in his/her investment or retirement plan. What one invests in can be individual stocks or bonds, mutual funds, exchange traded funds (ETF’s), or a combination of these. A person can do this, and typically does in a 401K plan, IRA, Roth IRA, a simple IRA or any investment plan.
The advantage of Dollar cost averaging is that one buys the same dollar amount each period, both when stock prices are lower and higher, without deciding in each individual investment period what to buy and how much. This can help take the emotion out of investing, and it helps an investor’s portfolio absorb much of the volatility and fluctuations of the stock market. It compels you to continue investing the same amount regardless of the market’s fluctuations.
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