Investor insight please.

[Natebonebusta]

I know the Roth has been mentioned plenty of times here so far. Let me give you a hypothetical example:

Average S&P500 return the last 50 years is 11.96%. I will be conservative and use an average rate of return of 10% in the scenarios below. Find a Time Value of Money or financial calculator and run the numbers yourself.

Scenario #1: Start investing into your Roth 401k @ age 22 at $1,000/mo for 10 years (total investment of $120,000) and completely STOP contributing at age 32. Note : This does NOT take into account any company match. At the end of that 10 years the value would be $204,845. Add 30 more years of compound interest the value is $4,063,592 at age 62. ALL Tax Free growth. Any money you take out has $0 taxes due.

Scenario #2: Save $0 until you start investing into a Roth 401k at age 32 @ $1,000/mo for 30 years (total investment of $360,000). Value at age 62 is $2,260,488.

Please take note that:

A: The power of compound interest over time. The guy who started early had significantly more than the guy who started later even though he stopped contributing after only 10 years.

B: Of the $4M+ in portfolio for Scenario 1 - he only paid taxes on $120k. If this had NOT been Roth but a Traditional 401k he would pay taxes on the entire $4M when it is pulled out of the investments!!

C: JUST PAY ATTENTION and put your investing contributions on automatic withdrawal from your paycheck you will be way ahead of most people! If it’s not in your checking account, it’s much harder to spend it on stupid crap!

Excellent advice and scenarios.

To add on to part C, treat it as a TAX on yourself. Most folks ignore taxes on their paystub, and get use to it not being present. Treat investing the same way, and it adds up in a hurry!