There is one thought I can say with certainty, we all shared. Maybe after not getting a toy you had to have. Maybe after being assigned a chore that to you, bordered on cruel and unusual punishment. Maybe it popped into your head after being denied permission to go to a party. Or perhaps it was spawned by a different set of circumstances. No matter the case I can guarantee at some point during your childhood you thought to yourself – I cannot wait until I’m grown.
So, you bide your time until the day finally comes when you reach adulthood, however it doesn't take long until you realize much like a bad Tinder date – it’s nothing like the pictures.
It’s not your fault that what you pictured as an adolescent varies from actual adulthood. See because the truth of the matter is there are two worlds and they often exist in opposition to each other. There is the world between our ears and the world beneath our feet. As a child, you have no experience with the world beneath your feet to know how it sets parameters on and expectations of you. You have no exposure to understand how your background, gender and ethnicity can impact your climb upward. You only have the ungoverned optimism and enthusiasm found in the world between your ears.
But soon after reaching adulthood the world beneath your feet makes it's play to overtake the world between your ears and reign supreme. How? By beating you down with rigidity, by measuring your success in metrics and a litany of other things. We become robotic: I get up at this time, I go to work for these hours, I come home, eat and watch this show, I do this 5 days a week and this is what I get paid for it. We become conditioned. We have our expectations set by people other than ourselves. We’re measured against our peers, we’re measured against society's norms and as long as we stay in our lane everything is ok. We at times mistakenly do away with our "child brain" and accept the way of the world beneath our feet.
How Retirement Savings Exposed My Conditioning
Any financial adviser worth their salt will tell you the importance of saving for retirement. It does not matter what their school of thought is, they will stress to you the importance of getting enrolled in your company's 401K or 403B plan early, and being consistent in your retirement contributions. Retirement advice for millennials goes something like this:
Start saving now. Why? The earlier you start the more your money grows. Starting early allows the returns your money earns to compound over a longer period of time and thus your money makes more money.
Ok so there is the why now let’s move to the how. Almost all financial advisors will tell you to select a target date mutual fund as the vehicle for your retirement dollars. Essentially, a mutual fund is pool of funds collected from many investors (other employees like you) that are actively managed and invested by a professional portfolio manager. Target date mutual funds take into account the following factors: age and risk tolerance. In terms of risk, if you’re young, the target date fund you select will in all likelihood be closer to the high end of the spectrum. The logic behind this is - a young professional has the bulk of their working years ahead of them, so you want to take more chances with high upside and potentially risky stocks. If you hit a homerun, your portfolio gets a large boost. If the market breaks bad, you’re young enough that you can ride out the downturn and recover over the years.
So now you’ve decided to invest for your retirement, you’ve determined what to invest in for your retirement, now how much money should you expect to make?
The consensus is to expect around 7% return per year. I’ll explain exactly what that means in a minute. Financial advisers will tell you, if you start early, contribute a decent percentage and earn 7% a year, you will be in good shape come retirement. If you want proof see the chart below.
The graphic shows the variance in savings accrued by 3 different people who started saving at different points in their lives. The drastic difference is due to one factor: starting early, providing a larger amount of time to compound your returns.
Put on your investing hat for the next two minutes because this is about to get technical real quick. To fill in the gaps on how Susan went from $0 to $1,142,811, the chart assumes a 7% annual return. This means over the 40 years her money was invested, she earned 7% profit year over year (a normal expected rate of return for the stock market) remember this percentage for later.
In regular English, she invested her money into companies that performed well and made money. In most cases when you own stock in a company and they perform well, the price of their stock will go up and in turn cause your investment portfolio to increase in value. This is what is known as profit, or a gain on your investment. For a more detailed example: if you invest $20 into a stock and a year later that stock is worth $35 that $15 profit is the return (gain) on your investment. To turn that into a percentage your return rate in this case is 75% (15/20=.75 multiply .75*100 and get 75%). Ok no more math. So basically as long as the value of the stocks owned in your retirement fund go up 7% every year you’re doing great!
I have my own personal IRA that I started 5 years ago, recently I checked my account to find the money I invested has grown by 7% per year. I was ecstatic! Until by reading I expanded my understanding in the world between my ears. While I was happy with my 7% return I could've just as easily gotten a 97% return over the period, if only I acquired the right knowledge and didn't settle for what someone else told me to expect. Here's the proof - If you look at the S&P 500, which is an index that tracks the performance of the top 500 companies in America, while I’ve earned 7% return on my investment, the S&P returned 97% over that same time period.
With a hunger for knowledge and the click of a button I could've went from 7% to 97% return on my dollars.
I did not write this post to give you financial advice. I don't know your money situation and cannot be your financial adviser. Although this post was heavily concentrated in finance, it’s about much more than that.
It’s about the 90% we leave behind in our lives. Whether it’s our career, friendships, relationships, finances or other, we can't let situations and circumstances make us stale and complacent, we've gotta keep learning, growing and building to get the 97%. Put down accepting what the world gives and shuffling along. Use reading, experience and exposure to impose the world we imagine onto the world we live in because we're no longer children wishing we're adults creating.
Maybe it’s in your college courses. A loved one or family member told you to choose a safe major instead of doing that “crazy thing”, Think about the 97%. Maybe it’s in your relationship, you’ve decided to “settle down” with so and so. How about we think about that 97% and settle up. Maybe it’s in your career, you keep second guessing applying for the position, leaving that company, leaving that comfortable place, think about the 97%. Maybe it’s something you’ve always wanted to do in your life and the opportunity to execute is staring you in the face but you just can’t put feet on your faith, think about the 97%.
When I realized the gains I forfeited, I felt sick. But truth be told, it was my fault for accepting what the world told me to accept. For taking what the world told me I should be happy with and shuffling along, for not digging and learning – more is out there, easily available for me. I focused solely on the world beneath my feet and abandoned the world between my ears. And this cost me 90% of growth. I thought it was all good because I was doing enough, making enough, and hitting all the benchmarks. This can’t be, we have to make new rules, new expectations, there’s too much available for us to live within the parameters set by others. The 97% is out there, we just have position ourselves to go get it.