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Young & Smart: Time May Be Your Money’s Best Friend

By Alexandra Macqueen, CFP

Published September 27, 2019 • 4 Min Read

The news spread like wildfire through the nonprofit’s corridors: A $6 million USD donation had just landed on their doorstep — the biggest contribution ever to the small social services agency.1 Where had it come from: a large corporate foundation? A wealthy philanthropist?

“We were all agape, just blown away,” said David Garza, the executive director of the Henry Street Settlement organization in New York City’s Lower East Side, after discovering the identity of the benefactor. The person behind the gift was Sylvia Bloom, a legal secretary who had worked at the same job for 67 years and took the subway to and from work each day.

Sylvia Bloom had amassed a portfolio of more than $8.2 million USD while earning a modest income as a secretary. She made modest — but regular — deposits to an investment account the entire time she was working.

Ms. Bloom’s story illustrates how, “Mighty oaks from little acorns grow.” Building wealth isn’t limited to people who start out wealthy, make large contributions, or who have special skills. Instead, the ingredient of “time” when added to a portfolio, may lead to financial success.

The factors contributing to Ms. Bloom’s savings include starting early, making regular contributions over time, and staying invested. How can you apply those elements to your own investment strategies?

This story shows that building wealth isn’t limited to people starting with outsized amounts, making large contributions, or even relying on special skills or exceptional market gains. Instead, relying on the ingredient of ‘time,’ or compounding, added to a portfolio can contribute to financial success.

The importance of starting early

The most important element in Ms. Bloom’s investing strategy was the amount of time she spent building her wealth. Starting early allowed her modest earnings to compound over time — so the gains her initial contributions earned were re-invested, rather than being withdrawn and spent or left in cash.

You may have heard the saying that, “compound interest is the most powerful force in the universe,” and Ms. Bloom’s example is evidence for that claim.

You may also be thinking, however, that your own investment time horizon is shorter than her 67 years. But Ms. Bloom started investing when she was 29. If you’re 25 or 35 years old, you might live for another 70 or 60 years — meaning you might, in fact, be investing for nearly as long as Ms. Bloom.

Starting early may give you a potential advantage over those who start later. Time is an asset that older investors simply can’t match.

Whether you have another 40, 50, or 60 years to invest, there’s no dispute that investors who start early have a potential advantage over those who start later. For the younger investor, time is an asset that older investors simply can’t match.

How making regular contributions can build wealth

Second in importance after starting early is regular contributions over time, or the impact of developing a disciplined plan for contributing to your investment portfolio.

In practical terms, this can be setting up a pre-authorized contribution from your bank account or paycheque so contributions are made automatically, without requiring any hands-on action on your part. In contrast, putting off your investment plans “until you have extra money,” are older, or are earning more may not be the optimal strategy.

If you’ve got time on your side, build on the momentum you’ve established by contributing regularly.

Why staying the course can pay off over time

The final factor in leveraging your long-time horizon is “staying the course.” This means letting time and compounding work on your portfolio.

Of course, this doesn’t mean you should never spend any money. Instead, make sure you have strategy that takes your short- and long-term goals into account; then make sure the money devoted to your long-term goals stays invested. In that way, those dollars can act like the “little acorns” funding your future goals.

If the idea of an investment plan and strategy — or even the notion of identifying your short- and long-term goals — sounds overwhelming, a financial advisor may help with ideas to help get you where you want to go.

Leveraging your biggest asset

In some respects, the story of Ms. Bloom’s situation is extraordinary: the amount she saved, and her investing time horizon, are both supersized. But the behaviours that led to her success can be put into place by anyone; and if you’re younger, you have a benefit older investors can’t match: more time.

1 Corey Kilgannon, The New York Times (May 6, 2018) 96-Year-Old Secretary Quietly Amasses Fortune, Then Donates $8.2 Million (ce lien mène à un site web dont le contenu est en anglais seulement).

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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