Commentary: Educated Investor: Let time work for you

Well, I know it is difficult to believe but another year has just flown by.It feels like it was only yesterday when we were all concerned about Y2K and the potential computer failures at the turn of the century. But because the corporations took time to prepare, everything went fine as the clock struck midnight five years ago and our computers kept on ticking.

Just like it took time for the businessman to prepare for Y2K, time is of the essence when it comes to investing. Time is limited and can never be recaptured. Once it is gone, it is gone forever.To be successful in accumulating wealth, an investor not only needs to save, but he needs time for his investments to grow. This time allows his earnings to compound. In other words, not only do you need to have your savings earn interest, but you need your interest to earn interest in order to really develop wealth.For example, if investor A starts saving $3,000 a year at age 25 and earns 10 percent a year until age 65, he would accumulate $1,460,555.If investor B waits until age 40 and begins to save the same $3,000 at the same 10 percent rate until he reaches age 65, he would only have $324,545 to show for his efforts.

Yet investor A only had to save an additional $45,000 to earn that extra $1,136,010. The difference is time, plain and simple.That time differential will make all the difference in the world when investors A and B both retire at age 65. Their lifestyles will be like night and day. With a 6 percent return during their retirement years, saver A will have an extra $68,000 a year in income during his golden years.

So why does one individual start to save at age 25 and another at 40? I am sure the 40-year-old could give you a multitude of adolescent excuses, but in reality the 40-year-old just wasn't properly motivated early in life to save for retirement.Most people go through life as if this life is only a dress rehearsal. They live one day at a time with no real specific direction. They just take life as it comes. They respond to life. They are always putting out brush fires.

Then on the other hand, a minority of individuals plan their lives and really know what it is they want out of life and they are therefore able to create internal positive motivation to accomplish their goals. They don't respond to life, they create it.So in our above example, the 25-year-old has probably developed life goals for himself and he is motivated to prepare for the future. He is living life.Whereas, saver B hits 40 years of age and all of the sudden wakes up to the fact that he is just 25 years from retirement and he better do something about his future nest egg.

This individual is responding to life or in this case, a retirement crisis.The sad part is that everyone could be motivated to save if they only took the time to set realistic goals for themselves and their families. It is just a matter of taking the time to discover what it is you want out of life and creating concrete specific goals.Goal setting creates internal motivation and is nothing more than placing into writing a specific detailed description of what it is you desire during the various aspects of your life cycle.In today's column we will discuss retirement goals. Now keep in mind that goals must be able to be put in specific words that enable you to create a visual mental picture of your desired goal.

For, example, stating that you want to have $1,460,555 in your retirement account at retirement is not a goal. Why? Because you really can't visualize in your mind what $1,460,555 looks like. The $1,460,555 is an objective. It is used for measuring your success in obtaining your goal.But I am sure you can describe in detail what that $1,460,555 could buy you during your retirement years. Perhaps nice winter vacations to the pristine ivory beaches that border the clear azure waters of the Caribbean by day, and exquisite dining experiences at world-class restaurants at night.Or perhaps golfing the best courses in the world or viewing the wildlife in Africa on a safari. Or what about that second home you always wanted in your favorite vacation spot?Write your goals down in vivid detail, read them every day and surround yourself with photos of your dreams and not only will you motivate yourself to save, but your goals will become a reality.

The problem with most people is that they really don't know what it is in life that they want. For those who don't know, I would suggest a life coach to help you develop and nourish your goals. A life coach should be a successful person who has obtained or is working successfully toward their goals in life and someone who you respect and perhaps share common interests. Look for a mentor.

Once you have developed your retirement goals, decide how much you might need at retirement to afford those goals, and then decide how much a year you need to save in order to reach that desired objective.Then invest those savings efficiently and monitor those investment results each year to see if you are on target. If you are not on target, then you may have to save a little more or invest more aggressively. Make sure your financial advisor is aware of your goals so you are both on the same page.

So the bottom line is this: create internal motivation to save by developing specific meaningful retirement goals that you can visualize. Most importantly, start saving today. Remember wealth accumulation takes time.Why not take the next couple of weeks and do the necessary soul searching to develop your retirement goals and set Jan. 1, 2006, as a starting date to get your annual savings at the level they need to be to fulfill all of your future retirement dreams.

And most important, start as early in life as possible and take advantage of time. Let time work for and not against you! Before you know it, your retirement years will be here in the blink of an eye.

David R. Clogg, an account executive at Chapin, Davis, writes this column, Educated Investor, every other week for The Daily Record. The recommended stocks may be owned by Clogg, his clients and his interview subjects. The opinions expressed are his own and not necessarily those of this newspaper. Clogg can be reached at 410- 435-3200.

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