Investment Strategies, Incorporated
Easy Street, Anywhere USA
To the New Graduate Fred Ferwerda:
Congratulations on your first job. The sooner you begin saving for retirement, the more money you will
have. The difference between saving for 35, 40, or 45 years is dramatic as can be seen from the table and
chart below. We cannot guarantee the future rate of return, but we can say that 7 percent is a realistic
expectation, given an investment in a stock market index over an extended period of time. A more
conservative investment such as government bonds can be expected to yield 6 percent. The table below
shows the value of a Roth IRA with an annual contribution of $3,000 at different interest rates. The
information is shown graphically on the next page.
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
8.00%
8.50%
9.00%
10
$36,865
$37,734
$38,626
$39,542
$40,483
$41,449
$42,441
$43,460
$44,505
$45,579
15
$62,352
$64,736
$67,226
$69,828
$72,547
$75,387
$78,355
$81,456
$84,697
$88,083
20
$94,114
$99,198
$104,605
$110,357
$116,476
$122,986
$129,914
$137,286
$145,131
$153,480
25
$133,696
$143,181
$153,458
$164,594
$176,663
$189,747
$203,934
$219,318
$236,003
$254,103
30
$183,021
$199,317
$217,306
$237,175
$259,125
$283,382
$310,198
$339,850
$372,644
$408,923
35
$244,490
$270,961
$300,754
$334,304
$372,104
$414,711
$462,755
$516,950
$578,105
$647,132
40
$321,091
$362,399
$409,817
$464,286
$526,896
$598,905
$681,770
$777,170
$887,048
$1,013,647
45
$416,550
$479,100
$552,357
$638,231
$738,974
$857,248
$996,194
$1,159,517
$1,351,591
$1,577,576
The “time in the market” is much more important than any attempt to “time the market”. In other words,
the longer you are invested, the better. Investing for 45 years at 7 percent, for example, yields $200,000
more than investing for 35 years at 9 percent. Seven percent is a much more conservative estimate, and
you will be able to sleep more easily, without the worry of a volatile market. One last piece of advice
would be to “pay yourself first”. Your paycheck will show multiple deductions for federal income tax,
Social Security tax, various insurances, and so on. Why not add an automatic deduction to a retirement
plan?
Sincerely,
Your investment advisors
291186577
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Place the line chart on this page
Future Value of a Roth IRA
$1,800,000
$1,600,000
4.50%
5.00%
$1,400,000
5.50%
Value of the IRA
$1,200,000
6.00%
$1,000,000
6.50%
7.00%
$800,000
7.50%
$600,000
8.00%
8.50%
$400,000
9.00%
$200,000
$0
10
15
20
25
30
35
40
Number of Consecutive Years Investing
291186577
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