Chris West, CPA, PFS
You may be familiar with the Chinese proverb about the best time to plant a tree: “The best time to plant a tree was 20 years ago. The second best time is now.” This same proverb can also be applied to investing. Time, not timing, is key to building wealth. Building wealth is not about making huge profits in the short term but about steadily applying good money behaviors over many years. The foundational money behavior is living below your means to enable the creation of excess investable liquidity (i.e., “cash”). The second foundational money behavior is putting that excess liquidity to work by embracing risk and investing.
Yes, it is certainly scary to witness the ups and downs of the stock market. The violent short-term swings can sometimes make one think of the stock market as more gambling than investing. However, historically, the market has trended upward. Since 1970, the S&P 500 (an index representing the 500 largest U.S. public companies) has produced an average annual rate of return of approximately 10%. The important word in that last sentence was “average.” For over 55 years since 1970, significant swings have resulted in annual returns well below and well above the 10% average. Yes, it can be a rollercoaster ride. This first rule is to get on the rollercoaster. The second rule is don’t get off in the middle of the ride. Warren Buffet is famously quoted as saying, “The stock market is the device for transferring money from the impatient to the patient.” Warren’s quote emphasizes the importance of staying invested through market fluctuations and not panicking during downturns by selling prematurely.
You can harness your money’s full potential by investing consistently and staying invested. This could require a mindset shift: Instead of worrying about short-term fluctuations, focus on the bigger picture. Even if the market drops, keep investing. Many successful investors subscribe to the mantra, “Always be buying.” This means that instead of trying to time the market— buying when stocks are low or selling when they’re high—you make regular, consistent contributions to your investment portfolio. Long-term investors who stay committed through good times and bad often see the best results. Even small amounts invested regularly can accumulate over time, building wealth in a steady, disciplined way. The longer you allow your money to compound, the greater the results. Even if you don’t invest huge sums of money upfront, starting early means your money has more time to grow. When it comes to investing, compound interest is your best friend. This powerful concept means that you are not only earning interest on your original investment but also on the interest that has already been added to your account. Compound earnings is one of the keys to long-term wealth building.
My example of the power of compound earnings is my own 401(k) retirement account. I recently fired up the good old spreadsheet and analyzed 28 years of activity in my 401(k). In my early 20s, I started contributing $100 per month into my 401(k) and slowly increased the monthly contribution as my wife and I’s household income increased. Now, 28 years later, it’s fascinating to see that the first 10 years of 401(k) contributions (and the related compound earnings) represents 31% of my current total account balance. Even more fascinating is that the first 10 years of contributions represent only 18% of total contributions to the account over 28 years.
For fun (because this is how accountants like to have fun), I projected my 401(k) balance out to my estimated retirement year of 2040, assuming a continuation of maximum contributions and an estimated average annual rate of return of 10%. The result: the first 10 years of contributions represented only 7% of total cumulative lifetime contributions. However, 25% of the total projected account balance was represented by the first 10 years of contributions (and the related compound earnings). What a powerful example to see that a quarter of my projected 401(k) balance will be represented by the early years of contributions. This is the result, even though the early years will have the lowest actual dollar contribution.
This might be too much numbers analysis to digest in an article, so I will boil it down to the main takeaway from my personal 401(k) analysis: Of my total projected 2040 account balance, 85% will represent the cumulative lifetime earnings, and only 15% will represent the actual cumulative lifetime contributions. WOW!!
My point? Get started early – the time to start is now! 2025 offers a fresh opportunity to start building your financial future. Remember, investing is a marathon, not a sprint. In your early years, focus on your savings rate versus your investment rate of return. Keep a long-term perspective, make consistent contributions, and let the power of compound interest work its magic. As you begin your investment journey, keep in mind that it’s not about having all the answers from the start—it’s about getting started. By building wealth on your terms and staying disciplined over time, you’ll be well on your way to financial success.
Christopher L. West, CPA, PFS, is CEO and a Principal of DWC CPAs and Advisors and DWC Wealth Advisors. During his public accounting career as a tax professional and advisor, Chris specialized in mergers and acquisitions, real estate advisory, cost segregation studies, small business taxation, and estate planning and income tax planning for high net-worth individuals. His passion is helping others find fulfillment and their definition of success in their wealth journey. He is a licensed Certified Public Accountant, Personal Financial Specialist, and is a series 65 investment advisor representative with Global Retirement Partners, LLC. Chris graduated with a Bachelor of Science in Accounting from Colorado Mesa University, Grand Junction. Investment advisory services offered through Global Retirement Partners, LLC (GRP) dba DWC Wealth Advisors, an SEC registered investment advisor. GRP and Dalby, Wendland & Co., P.C. are separate and unaffiliated entities.
