One of my daughters has a 20-year old daughter who is about to become eligible for her employer’s 401k plan.

Last weekend the three of us had the start of a discussion regarding whether to immediately begin investing in her 401k plan, or to wait till “it becomes more affordable”. She (Granddaughter A) had lots of reasons why it makes sense to wait. I suspect if you have kids or grandkids you’ve heard many of these reasons too. Popular among these are, ‘I can save more later’, ‘I’m saving for ‘something’, ‘housing is expensive’, and so on.

So, I put together the following chart which I encourage you to peruse and consider.

In the chart, I illustrate two (mostly) hypothetical granddaughters. One starts saving now and saves $1000 a year over the next ten years and after that just lets the balance ride — with not even one more contribution — for an additional 20 years. (There are no taxes shown in my charts.)

You’ll note that after ten years she has saved $10,000. Using a somewhat reasonable expectation, I’m assuming she earns 6% a year on the contributions and after ten years her account has grown to $13,181. The big deal, however is that, with NO additional contributions that account, growing at 6% a year becomes $42,273 by the time she reaches age 50. She actually can’t imagine anyone being that old, of course.

Now for comparison we have Granddaughter ‘B’ who ‘waits till she can afford to begin contributing’. She waits ten years and then saves $1000 a year – not for ten years but for 20 years; making a total contribution of $20,000. With the same 6%/year compound rate of return she will accumulate $36,785 by the time her smarter sister has accumulated $42,272. Let me repeat that: ‘A’ saves $10,000 and ‘B’ saves $20,000, and after thirty years ‘A’ has saved HALF of what ‘B’ has saved, but ‘A’ has accumulated more money than her sister.

This is a lesson that all of us manage to learn sooner or later – that it’s better to save earlier than to wait and save later. To make this a bit more interesting, Granddaughter A’s employer will match her savings so she will be able to save $1000 a year and have her employer add an additional $1000 a year. The balances will become twice as large.

Wish me luck. She’s a bright young gal, and I think she’ll get the message. You may wish to share this lesson with your younger kids or grandkids.


Market Minute 4/13/2017 – What’s Happening to the 10-Year Treasury Yield?

You might remember that we did a Market Minute around the middle of March in which we commented that the yield on the 10-year US Treasury had exceeded 2.5% and then 2.6%. That was a big deal because after last summer’s low of 1.34% it appeared that the only direction was up for the US Treasury bond. The excitement was that with higher potential rates, mortgage rates, and interest rates on a credit card and other vehicles, we needed to plan for higher rates all around.  

This week, however, we saw the US 10-year Treasury close at 2.29% yesterday (4/12/17).  As I write this (mid-morning on Thursday) the yield is at 2.23%. Small increments, yes. But important! This would seem to indicate that the interest rate world has changed its mind and perhaps the lower interest rates are not gone…at least for the immediate future. It would be so much easier if interest rates (or stocks for that matter) gave us easier clues to their future direction. But as a friend in Richmond says ‘What is, is’. We have to deal with the real world, and not the world as we’d prefer it to be.  

What does that mean? Perhaps you have more time to look for a cheap rate on your home mortgage. Or perhaps you can continue your search for a cheaper credit card.  

And more important, at least from our chair, is that a lower interest rate environment favors different types of investments. Non-US holdings are gaining vs. US holdings. Energy, Utilities, and Consumer Staples (the conservative stuff) seem to be taking the lead away from Industrials, Financials, and Materials. In addition, for the immediate future precious metals are gaining strength. Time for a change of investment targets?  Well, perhaps. We have made some incremental changes and will continue to make some additional incremental changes.  

It’s never (or at least rarely) boring in this chair.  


Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
10000 N. 31st Avenue, Suite C-262

Phoenix, AZ 85051
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