While rapidly rising medical costs are a legitimate concern,
the fact remains that young people very much have it in their power to prepare
for the financial realities of retirement.
It’s not just saving more and being disciplined about
spending, although that helps. No, the advantage of youth when it comes to
retirement is twofold: immunity to volatility and the simple, wealth-building
power of compounding.
First, as a young person, you can afford a huge market drop.
Many beginning investors see an event like the 2008 credit crisis and get
spooked. They quickly move to conservative holdings and never assume an ounce
of risk again.
But the fact is, stocks recovered. A major decline and a
subsequent recovery, even one that takes a few years, is really a blip when
you’re talking about a multi-decade investing trajectory. Focusing on paper
losses means you tend to ignore the consecutive years of double-digit gains
before and after the down year.
Secondly, you have a multi-decade investing trajectory. That
means you really get to enjoy the effect of compounding. Simply put, a properly
allocated portfolio can double in 10 years or less.
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