Let Time Pave the Way to Fiscal Success

Financial magic:

Time is such a valuable commoditythat it's a shame when physician-investorssquander it. Theseinvestors are wasting a resource thatcan't be recovered. Investors who understandjust how valuable time is will wantto keep it on their side. The truth is, timeis an investor's most valuable ally. Returns increase exponentiallyover time. Therefore, havingtime on your side is a key element tofinancial success.

Time's Crucial Role

To see just how valuable this elementis, let's consider the case of a 20-year-oldwho wishes to retire at age 60 with $1million in the bank. Assuming an 8%interest rate return, this future millionaireneeds to deposit only $3574 peryear, or $68 a week, to reach their retirementgoal. Throughout their 40-yearworking career, they will deposit only$142,969. The balance of the $1 millionwill come from earnings on the account.

Of course, every day this investor waitsto get started costs them in terms of annualand total deposits. And the longer thisinvestor waits, the more likely it is thatthey won't reach their $1-million retirementgoal. That's why it's important toalways remember that time is a finitecommodity. Once it's gone, it's gone—andthere's no getting it back. Therefore, gettingtime on your side should be a topconcern for physician-investors.

Common Mistakes Made

Keeping your funds in play with reasonableinvestment strategies and disciplineis just as important as starting early.A depleted nest egg destroys your mostvaluable ally in the quest for financialindependence. Avoidable investment mistakescan fritter away years of savingsand effort, placing you right back at thestarting point with little time to recover.Make sure you avoid the following mistakesto keep time working for you:

• Using retirement savings. A disappointinglyhigh percentage of workersfail to rollover their pension and profitsharing accounts when they change jobs.Instead, the funds are used for everythingfrom vacations to new cars. Investorsshould avoid using the money inthese accounts. While the amounts mayseem relatively small, if they're left toaccumulate tax-deferred in an IRA,they'll grow to substantial amounts. Forexample, $10,000 left to grow at 8% for30 years will be worth $100,626 when it'stime to retire.

• Playing with your money. Somedelusional investors rationalize that aseries of high-risk investments will averageout over time and that a loss today can bemade up by a gain tomorrow. Despiteexperience, these investors continually buyinto deals that sound too good to be true,hoping for a huge payoff. This type ofgambler's mentality has almost nothing todo with investing and rarely leads to anythingbut financial ruin.

• Concentrating your portfolio.Anything less than a fully diversifiedportfolio magnifies risk without increasingexpected returns. No investorshould ever bear a risk that could bediversified away. Investors can't affordto have all or part of their savingsvaporized. The more concentrated aportfolio is, the more opportunity thereis for financial disaster. Just ask anyEnron employee how they like theircompany stock today. Avoid sectorfunds, individual stock holdings, andfunds with concentrated positions.

Frank Armstrong is the authorof The Informed Investor: AHype-Free Guide to Constructinga Sound Financial Portfolio(Amacom; 2003). He has builtup a solid following for his personalfinance advice on talk radio and otherbusiness media, including CNNfn. For moreinformation, visit www.investorsolutions.com.