“I’m mad at myself for wasting time,” he said.  “Nine whole years have passed that I won’t get back, and I did nothing!”

I suppressed a laugh, but I was not making fun; I was astonished.

I’ve heard this many, many times but this guy was different.  He was 25 years old, lamenting about what he did not do at age 16.

His wise grandmother had told him to start contributing to a Roth IRA when he was 16.  She showed him how $5,500 invested annually until he retired at 66 would likely grow to over $1 million if he received average market returns.

She was right to encourage him early on.  I always tell young people that it doesn’t take a lot of money to grow money – it takes time, discipline and consistency.  Those three components can super-charge a retirement fund.

In my experience, however, people mistakenly think that a small commitment is not worth making.  They wait to save up until they have a big stash to plunk in all at once.  Unfortunately, this usually falls by the wayside.  Other expenses creep in  — like getting a new car.

Or they become distracted by what the market is trading at and they stand on the sidelines waiting for the right time to jump in.

To someone young and not earning much, it can seem like there is no place at the grownup table – trust me, there is.

A consistent, disciplined plan (think automatic investments deducted from a bank account every month) is better for many reasons.  $100 a month might not be noticed in the monthly budget – but writing a check for $1,200 might cause a hand-freeze.

The market is up?  The market is down?  No big deal because shares are being bought monthly so the share price averages out.

In Tiny Improvements, Big Results, my colleague, Ben Carlson, shared just how meaningful small changes can be.  While this example is hypothetical and assumes a market return of 6% (not an unrealistically high return; but the market never generates a fixed, consistent return), the takeaway is how powerful compounding is, even when done in small increments.

Investing just $25 a month from ages 22 to 65 could result in an account worth over $60K, which is pretty impressive.  Who would miss $25?  That’s like $6.25 a week.

But, by increasing the amount to just $30 a month, the account could grow to over $215K.

And, if every year that monthly amount was increased – the results are astounding:

As Ben points out:

“Adding $5, $10, $25, and $50/month to your savings each year is an annual increase of just $60, $120, $300, and $600, respectively. These aren’t enormous sums of money but look at the massive differences in the ending balances.”

“Saving $25/month over the course of a year is only $300 in total but adding $50/month to that total every year using an incremental approach can add up to a fairly large sum of money through a combination of diligent saving and compound interest.”

So, if you’re young – know that your “little” savings can yield big results if you do three simple things:

• invest consistently;
• make time work for you; and
• increase the amount you invest gradually.

Compounding does not discriminate.  It likes all contributions, big and small.

If you are reading this and you are already older and wiser, be like the grandma who encouraged her grandson.  Share this with someone who needs a reason to get started now.

As for that 25-year-old, I told him he still has miles of road ahead of him.  If he uses his remaining time well, he’ll stop beating himself up for missing out from ages 16-24.

I have no doubt he will.

 

When asked by strangers what I do for a living, nothing makes people recoil more than realizing my profession has to do with financial matters.

If only they knew that, as a fee-only fiduciary, my role as a financial advisor is markedly different than what they have come to think of from a financial “professional.”

I have had the following hurled at me by people who assume that all of us in the industry are alike:

• “Oh, you’re a salesman!” – Gender aside, no I’m not. Selling is as unnatural to me as writing with my less dominant hand.
• “You must love money and all the trinkets it can buy.” This is comical since I drive a mini-van that is over a decade old. Yeah, status and stuff don’t ring my bell.
• “You’re not going to want to talk to me; I don’t have any money.” Again, au contraire; I’m not all business and second, I love being helpful above all else. I derive great satisfaction from educating someone so they can avoid being taken advantage of.

I could take offense at being misjudged so quickly, but these misperceptions say a lot more about the state of the financial industry than my intentions.

The continued misleading practices by sales-driven firms to seem like they are advisors are confusing and damaging.   A google search of “financial advisor ratings” brings Ameriprise to the top of the search.  A stop at their homepage seems very investor-friendly, touting:

“When you put your client first they return the favor.”

They brag about how clients awarded Ameriprise with top ratings in customer service, customer loyalty and trustworthiness  I guess these clients haven’t heard what the SEC had to say:

“SEC Charges Ameriprise with Overcharging Retirement Account Customers for Mutual Fund Shares”

In short, some retirement accounts contained higher cost funds when lower cost funds were available.  Of course, clients were not presented with the lower cost options, nor did anyone explain that the firm would make more money (at the expense of the clients’ total returns).

It seems like clients should have awarded Ameriprise “Best BS Artist.”

There are plenty of other offenders. UBS was kind enough to spread their sunshine beyond just retail investors to include retirement accounts, such as 401(k) and 403(b) participants; and even charitable organizations.

They, too, failed to offer clients lower cost funds that were available; they chose to sell more expensive classes of mutual funds.  Nor did they disclose their conflicts of interest. Read about it here: “SEC Charges UBS with Supervisory Failures in Sale of Complex Products to Retail Investors.”

Cheating charities – does it get any lower?  Do they drown kittens as an encore?

It’s no wonder my profession is a hot button with strangers.

The industry has made oodles of escarole pretending to be something it is not, and it has brainwashed young, eager minds fresh out of school with the lure (or the lore) of “making a lot of money.”  It’s not a tough sell; don’t many parents push their kids into landing a profession based purely on earning potential?

Shortly after I graduated, I received a phone call from a guy I grew up with – a kind, smart, nice guy.  He asked me to purchase my college directory for him so that he could have a cold call list chock-full of country club, young (ignorant) career-minded individuals.

In spite of my naiveté, even I knew this smelled rotten.  I politely told him that I wouldn’t want my information passed on to a stranger and I would not do to someone what I wouldn’t want to be done to myself. (Oh, if only the industry and the world at large operated this way!)

He couldn’t understand why I would care.  He promised not to let anyone know where or how he had obtained the directory.  In his eyes, there was no moral dilemma.

It was hard to reach him because his eyes were already dancing, anticipating a glittering prize; and, it changed him.  They changed him, and he complied:

• He grew facial hair, at the request of his manager, to look older than 22.
• He was forbidden from taking his Toyota Supra to appointments; a more elegant Cadillac was leased for him so that he could appear older, wiser and more successful than he really was.
• His speech changed into a fast-paced, “always working an angle” sales babble that made me twitch.
• All conversations led to money – who was making what; who was living the good life; driving the right car; landing the trophy girl.

Basically, Wall Street the movie was being held out as the gold standard, and not the cautionary tale it should have been.

Sadly, but not surprisingly, we drifted apart.  This young man I had thought of like a brother had become a stranger to me; and an ugly one at that.

So, when someone mistakes me for this caricature that the industry created, I see the skepticism for what it really is: a series of bad experiences investors have had elsewhere.  It is my job to right these wrongs if they will let me.

If they take the time to get to know me, they can decide for themselves without pressuring tactics or smoke and mirrors because I don’t sell anything, nor do I pretend to be something I am not.

Some of us actually do walk the walk; and yes, we do sleep better at night for it.

That’s all the perk I need.