Young Investors Can Bank On Time

It is one of the conundrums of investing: Why don’t the young do it? After all, they are the ones who can reap the most rewards from the passage of time, and they have plenty of years to recover from mistakes.

Sure, some people in their 20s do save. Some recent surveys suggest that more twentysomethings are saving for retirement than did their elders at a similar age.

But many young Americans do not salt anything away, or at least not much. And the same force, time, that makes youthful investing pay off also makes delay costly, as a calculation by the Vanguard Group mutual fund company makes clear.

Imagine a 25-year-old who invests $1,000 a year at 8 percent interest, does so for 10 years and then stops his contributions. At age 60, despite stopping at age 35, he will have nearly 36 percent more money than someone who waits until age 35 to start investing the sum and does so every year religiously for 25 years.

“That’s the power of compounding,” said Rob Cummisford, a consultant for Ibbotson Associates, an investment consulting firm in Chicago. “Your money gets invested sooner, and it has extra time to work for you.”

So who are the young investors who have cracked investing’s biggest conundrum and gotten that lucrative head start? What spurred them to begin? What were the hurdles?

Some people in their 20s are just naturally farsighted, like Daniel D. Soine, 24. Having paid off his credit card debt and seeing his savings account grow a bit beyond its opening balance, Soine, a public relations executive with the United States Professional Tennis Association in Houston, now invests $100 a month in the Janus Fund, a growth-oriented mutual fund. He has about $1,300 so far. “Once I get up to the $2,500 minimum, I am going to start up with an aggressive growth fund, 20th Century Ultra,” he said. “I want to get that aggressive growth while I am young,” suggesting that he will close out his Janus Fund account.

Ken Kurson, 26, an editor at Worth, a personal finance magazine in Manhattan, also has an eye on the future. Earning $35,000 a year, he started investing about 18 months ago. “I suddenly had money for the first time,” he said.

So far, he has $1,000 in the Berger 100 fund, a growth fund with many technology holdings. He has also put $5,000 in Wasatch Aggressive Equity Fund and $2,000 in Founders World Wide Growth. Kurson also holds some stock in Apple Computer and Scripps Howard.

Of course, Soine and Kurson are lucky to have money to invest. For the young, it is a scarce commodity.

“Most people in their 20s are just trying to scrape by and pay the monthly bills,” Soine said. “Saving for retirement is the last thing on their mind.”

Dire Social Security forecasts worry Ana Marie Cox, 23, a New Yorker who works as an editorial assistant at Alfred A. Knopf, the publishing company. Indeed, she is skeptical that Social Security will be able to provide adequately for her parents, who are in their early 50s, much less for herself. “I would like to be able to help my parents out when they get older,” she said.

Cox, who said she earns about $20,000 a year, won’t be able to contribute to her company’s 401(k) until next year. In the meantime, though, she is squirreling away what she can. By cutting out lunches and forgoing compact disks, she has managed to save about $300.

“In the next couple of months, I should have enough for a minimum investment” in a mutual fund, she said. “I haven’t decided where yet, though.”

She does, however, keep a file of newspaper clippings about funds to help guide her choice.

Despite their haziness about goals, young people have some financial sophistication.

“What we have learned is that people in their 20s and 30s today are much more knowledgeable than people that age were 20 or 30 years ago,” said Richard Eisenberg, 38, executive editor of Your Future, a personalfinance magazine produced by Time Warner that is aimed at people in their 20s.

Not only do younger adults now have many more sources of financial information, he said, but they are not as preoccupied with another investment, real estate, as were their elders.

For many neophyte investors, the lure is an ambitious one: early retirement.

“I would love to retire in my late 40s and 50s,” Soine said. “That’s one of the key reasons why I am investing.”

Maybe he will succeed and maybe he will not, but by starting early, he has certainly raised his odds.