Ellevest founder Sallie Krawcheck explains how the power of compound interest should outweigh the fear of a stock market drop.
Sallie Krawcheck knows investing.
The former CEO of Smith Barney and Merrill Lynch Wealth Management and CFO of Citigroup is now the cofounder and CEO of Ellevest, an investing platform specifically for women.
After giving some cautionary advice — don't use your credit card to spend money you don't have! — Krawcheck shared something smart she did in her 20s: She started investing.
"I'll never forget my ex-husband telling my brother not to bother to invest in his 20s because he, my brother, would make so much money later, he can make up for it," Krawcheck said. "No. No. No. The power of compounding, as you know, is something we don't intuitively understand, but is so powerful."
Compound interest is simply when interest earns interest on itself — it compounds. It's so powerful, she said, that its potential for growth should counteract the fear many people have of a market down turn. Here's Krawcheck:
"The example I'll give and, really, the reason I founded Ellevest, which doesn't have a minimum for this reason, is if you're a woman, you're doing well, you're making ... $85,000 bucks a year, you're saving. You're putting aside 15, let's call it 20% of your income you are saving, but you're leaving it in the bank instead of investing in a diversified low-cost ETF portfolio.
"If you wait to invest for 10 years, which so many women do, the amount that costs you a day is — dramatic pause — $100 on average historically. $100.
"This number just becomes so big because of that impact of compounding. 'Oh no! What if the market goes down?' You know what? If the market goes down and you're investing steadily, you'll be buying a cheap market. Sometimes you'll buy an expensive market, sometimes you'll buy a cheap market. That habit formation, a percent of every paycheck, I did and it's the smart money move I made."