Hard Work Pays — but Not Enough

Building wealth requires something more.

Hard work pays but not enough

Your parents and the American education system instilled in you from an early age that hard work is a virtue. Schools are designed to impart knowledge that you can apply to a career to get a job, work hard and earn money.

That’s great — but it doesn’t go far enough.

It’s doubtful that you’ll become wealthy if all you do in life is work hard. You must do something else in equal measure. You must also work smart.

Here’s why: If you regularly save some of your hard-earned money in an account earning 1 percent, you won’t see much increase in value — even if you save for decades.

But if you manage to earn a higher return, the compounding effect can help you produce the wealth you seek. Chapter 3 of The Truth About Money explains the principle this way:

If you save $150 a month at a 5 percent annual return, in 40 years you’d have $228,903 (ignoring taxes and fees). Such returns aren’t guaranteed, of course; this information is offered merely to illustrate the concept of compound growth. If you double your savings to $300 per month, you will double your return — to $457,806. But to do that, you’d have to work harder — and most of us work hard enough as it is.

However, if you continued to save the same $150 per month but earned 10 percent instead of 5 percent, your account in 40 years would be worth $948,612 — four times what it would have been worth at 5 percent.

That’s a simple example of working smart (not that I’m suggesting that 10 percent returns are attainable, of course). As you can see, working smart is as important as working hard.

That’s why it’s important that you build and maintain a portfolio with the potential to help you earn the returns needed to benefit from compounding. That’s what we do for clients of Edelman Financial, via the Edelman Managed Asset Program.

If you’d like to help your family members and friends work smart too, have them contact us. We’d be happy to get them started.

 
Originally published in Inside Personal Finance September 2017

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