Use High Volatility as an Opportunity

Use High Volatility as an Opportunity

Hi everyone, my name is Tan, and I am an independent CERTIFIED FINANCIAL PLANNER™ practitioner at TAN Wealth Management. Today, I spoke with Thomas Vacar, Senior Reporter at KTVU, about how investors can respond to stock market uncertainty.

My key messages?
Use high volatility as an opportunity:
• Consider a Roth conversion, as qualified distributions from Roth accounts are tax-free
• Sell investments at a loss to realize capital losses, which can offset capital gains and up to $3,000 of earned income*
• Gift assets strategically to beneficiaries to reduce the taxable estate
• Rebalance our asset allocation to stay aligned with our long-term goals
• Stay invested because no one can predict the future
I also shared a powerful investing insight: If we invest consistently over 40 years, more than half of the final portfolio value comes from the first 10 years of investing. This principle holds true across different rates of return.

Here's a featured moment from our conversation, as seen in the KTVU segment.

I love numbers because they're unbiased, universal, and verifiable; anyone can check the math. Let's break down the investing insight I shared in the KTVU segment.
Over a 40-year period, the first 10 years of investing can generate more than half of our total account value, even if we stop contributing after the 10th year.
Let's explore three investing scenarios, all assuming an 8% annual return:

Scenario 1:
At an 8% annual return, we contributed $10,000 per year at the beginning of the year for 40 years. By the end of the 40th year, the account grew to $2,797,810. This highlights the long-term power of consistency and discipline in investing.

Scenario 2:
At an 8% annual return, we contributed $10,000 per year at the beginning of the year for the first 10 years, then no contributions. The funds remained invested and continued to grow at an 8% annual return. By the end of the 40th year, the account grew to $1,574,352. $1,574,352 ÷ $2,797,810 = 56.27%. More than half (56.27%) of the total 40-year value came from just the first 10 years of investing. This scenario demonstrates how starting early allows compound growth to work in our favor, even without continued contributions.

Scenario 3:
At an 8% annual return, no contributions for 10 years, then we contributed $10,000 per year at the beginning of the year for 30 years. By the end of the 40th year, the account grew to $1,223,459. Even though we contributed more than in Scenario 2, the delayed start led to a lower ending balance, highlighting the cost of waiting to invest.

The takeaway:
Time is one of the most powerful tools for building wealth. Starting early, even with smaller contributions, can have a greater impact than starting later with more money. The earlier we invest, the more we benefit from the power of compounding.

I hope you enjoyed this video and thank you for watching it. Until next time, this is Tan, your trusted advisor.

The Math
For example, we invested $10,000 at the end of the year (instead of the beginning of the year from the three scenarios above) for 40 years at an 8% rate of return, more than half of the account value comes from the first 10 years of investing.

Invested $10,000 a year for 40 years at an 8% rate of return
P/YR = 1
END
Present Value = 0
Interest = 8
Number = 40
Payment = -$10,000
Future Value => $2,590,565

Invested $10,000 a year for 10 years at an 8% rate of return then let it compound for 30 years at an 8% rate of return.
Step 1:
P/YR = 1
END
Present Value = 0
Interest = 8
Number = 10
Payment = -$10,000
Future Value => $144,865

Step 2:
P/YR = 1
END
Present Value = -$144,865
Interest = 8
Number = 30
Payment = 0
Future Value => $1,457,726

At a 6% return: $1,547,619 ; $757,032
At a 7% return: $1,996,351 ; $1,051,739
At a 8% return: $2,590,565 ; $1,457,726
At a 9% return: $3,378,824 ; $2,015,745
At a 10% return: $4,425,925 ; $2,780,981

Wealth Perspectives

Use High Volatility as an Opportunity

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