David Moon, USA TODAY NETWORK – Tennessee 4:00 a.m. ET Feb. 12, 2017 David Moon(Photo: Amy Burgess) In 1990, my friend Carl had a fantastic year in business, earning a then-record bonus of $45,000. He considered several possible uses for the windfall, including a new S-class Mercedes sedan. He eventually gave into responsibility, and put the money into a mutual fund for his 10-year-old son. Focused on raising his family and selling widgets, Carl checked on the mutual fund account only sporadically. When the bear market of 2000 occurred, opening the statement was so depressing that he simply stopped. While doing some estate planning last year, Carl finally took a look at the account he was sure had dwindled to nothing. His original $45,000 investment was worth $306,000. That may seem like a massive return, but it is less than 8 percent annually. Everyone knows that the key to letting compound interest work for you is to start saving and investing early. People forget, however, that investment returns arenât linear. Carlâs mutual fund didnât return 8 percent each year. Some years it declined 30 percent. And some years it increased 30 percent. For compounding to be effective, you canât afford to miss those exceptional years. In an effort to assuage their fears or avoid volatility, too many investors jump in and out of stocks, invariably missing those good years. Over long periods, most people can afford to be in stocks when they do poorly, but canât afford to be out…more detail
