I ran across an article on MSN Money written by Scott Burns. I wish I had known this when starting out. Maybe you know someone young (your child, niece or nephew) that this can benefit- feel free to pass the info along!
Starting at the age of 16, if you were able to save $2000.00 (working, asking parents or grandparents, etc.) and invested it in a Roth IRA, it would grow, tax-free for as long as you own it. After you turn 59 1/2, any withdrawals would be tax-free.
If you invest the money in a common stock mutual fund that earns an average of 10.7% per year, at the age of 20 (4 years later), the account would be worth approximately $9378.00. Letting the money stay in the same or similar fund with the same rate of return until retirement (adding no additional money), the growth would look like this:
- $25,917.00 by the time you are 30
- $71,625.00 by the time you are 40
- $197,943.00 by the time you are 50
- $547,037.00 by the time you are 60
- AND $1,114,423.00 by the time you are 67.
This particular 16 year-old started AND finished saving their money before even turning 21!
Is it worth the risk? Common stock mutual funds are the riskiest, but also offer the biggest returns. This plan requires an early start and tenacity to weather the ups and downs of the stock market. If the fund averages an annual return of 12.5%- the balance of the account would grow to $2.4 million!
As you grow older, you can switch the money into different funds that carry less risk and help preserve the capital. The bottom line to consider: if the mutual funds you chose lost money- all you would lose is the initial investment of $2000.00! Would it be worth the risk? There is no right or wrong answer; it's a personal choice. Before investing in the market, it is wise to speak with an Investment Advisor.
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