Turning Beer Money Into Early Retirement

**Originally posted in September, 2008, this has been updated to reflect the deep impact the current economic recession has had on stock valuations. The examples using Honda Motor Company and Apple have been adjusted to reflect the current value of the stock.**

So relatively recently - we'll say May of this year - I became interested in the stock markets and everything Wall Street. Perhaps it's because I'm starting to feel older. It could have to do with finally graduating college and facing the prospect of the real world. For whatever reason though, I've become a financial news junkie. Hour after hour of my free time has been spent pouring over articles on the Motley Fool, the Wall Street Journal, The Street, Google Finance and a number of other online sources. There is an incredible amount of information on the web regarding stock markets.

Throughout all of the literature I've read, there has been one common message: START EARLY. The numbers don't lie - statistically the S&P 500 has returned roughly 10% annually since it's inception. That means a $10,000 investment in 2000 in a broad market fund would now theoretically be worth $19,487.17. The recession has had an enormous impact on the value of stocks over the past ten years, and we're essentially back to where we were in 2000. But for the sake of argument, let's use the historical number of a 10 percent return.

Of course in 2000 not everyone had $10,000 to just set aside - I know I didn't. As a sophomore in high school working a PT job in a grocery store, I probably didn't have $1,000 to set aside! But, I remember cashing those $350 paychecks every two weeks and blowing it things I thought I needed: cds, gas, McDonald's and party supplies for the weekend warrior in me. I think back about all the money I've spent on "party supplies" over the past nine years and I wince when I consider how much it could be worth now.

That being said, I wouldn't take back very many of the priceless moments spent with friends over the years that cost money. You should work to live, not live to work. What's the point in earning money if you never take the time to enjoy it? Of course if I had simply pared down my spending just a bit - say take a weekend off a month - I'd likely have a nice pile of change right now.

Example:
Let's say I spent roughly $20/weekend on partying. Over the course of the past 9 years, that's probably a fair average. If I had stayed in one weekend a month, I'd have saved $2,160 over the past 9 years [($20 *12)*9]. That's a decent amount of money by itself. But let's say I put that money into a decent company whose name I knew - we'll do Honda. Since Dec. 31, 1999, Honda (HMC) is up over 38%. It has also paid out dividends (those wonderful moments when a company gives its shareholders some of it's income), but I'm gonna reinvest those. The market value would now be worth $3,208.10 today. That's a difference of over $1,048 if I had simply saved that $20/month!! I don't know about you, but a $1,048 vacation sounds really nice right now.

We'll do one more. Let's say for some reason I was clever enough to invest that $20/month in Apple. You know, the company that makes your iPods, iPhones and MacBook Airs. That investment of $1,920 over the course of these past 9 years would today be worth $17,885.80! That's a gigantic difference! With that money today I could effectively pay off my student loans from college. Hot damn!

My point isn't that it's super important to pick the next Apple or Wal-Mart or Google. Not every company is going to experience that kind of growth. But what is important is that you start now. The sooner you begin setting some money aside the sooner it can start bringing you some returns on it.

If you're reading this, that's a great first step. But I don't claim to know everything about investing. To be honest, I don't know much beyond what I've read from people far wiser than I. But if you're interested in reading more I'm going to try and post a blog on investing on a recurring basis. Also, I encourage you to visit some of the websites that I've found to be a treasure hoard of information. I go to The Motley Fool, Google Finance, MSN Money and The Street for a few.