Investing for retirement is different than investing for the short term. And it’s definitely different than putting money in a savings account and hoping it will grow into a retirement-ready nest egg.

So how do you save for retirement? It all comes down to time in the market, adjusting for risk and starting sooner rather than later.

Long-term investing vs. short-term saving: What’s the difference?

Investing for the long term is different than investing or putting money aside in a savings account for a rainy day. They’re both ways to put aside money for when you need it — but they serve very different purposes.

A few months worth of ready cash in your savings account is a great part of a personal finance plan. That money will save the day in case of a sudden move or a layoff or when an expected medical bill comes your way. But a rainy day fund kept in one’s savings account is not a very good way to save for retirement.

If you put away $1,000 into a standard savings account and added $100 each month, with an interest rate of 0.06%, you’d only have $66,000 after 35 years

Savings account don’t yield much much interest. In 2017, the average savings account had a mere 0.06% annual percentage yield, according to the Federal Deposit Insurance Corp.

If you put away $1,000 into a standard savings account and added $100 each month, with an interest rate of 0.06%, you’d only have $66,000 after 35 years.

Growth of $1,000 in a traditional bank savings account, for 35 years

[infogram id=”0c880732-1a14-493f-a9d7-1e73fb235417″ prefix=”Z4f” format=”interactive” title=”Chart 1″]

*Chart is for illustrative purposes only and does not reflect the deduction of taxes on interest earned.

When you’re investing for retirement, you’re looking way into the future. Think 25 to 40 years, depending on how old you are when you begin.

That same amount, invested in the market with average annual earnings of 5% for 35 years would be worth $114,000 by age 70.

Long-term investing is also different than investing for a goal five to seven years into the future. An example of this kind of goal is saving for a down payment on a home or a new car.

When we talk about investing in a retirement fund, you need to think forward into a time where you don’t know what the future will hold.

Time in the market

It’s tough to imagine life 35 years into the future. And sure, it may seem overwhelming or too far away to even contemplate planning for. But by starting now with a timeline to get to your goal, you’ll be setting yourself to up capture the lows and highs of the market over time. Plus the money you’ve invested can start compounding.

If you think 25 is too young to start, here’s the difference between putting $1,000 in the market, with monthly contributions of $100, for 35 years versus starting at 35 and investing for 25 years.*

That $114,000 for the person who started investing younger is only $60,000–nearly half as much–for the person who waits 10 years.

Growth of $1,000 for 35 years, compared to 25 years

[infogram id=”698ca97b-7498-4da5-9038-a3a2de64cd4a” prefix=”xUX” format=”interactive” title=”Chart 2″]

*This is a hypothetical example that demonstrates a mathematical principle. It does not illustrate any investment products and does not show past or future performance for any specific investment.

Of course you shouldn’t be discouraged if you’re getting a later start. You can still get where you need to be. You’ll just need to adjust how much you contribute on a regular basis to get there.

Longer-term goals and risk

Investing will always involve a certain amount of risk. But by building a more diversified portfolio with stocks, bonds and holdings from multiple sectors (tech, energy, blue chips), you’re balancing it out.

The more time you keep your money in a retirement account, the more time you’ll have to weather financial storms too.

Will the market go up and down? YES. The market will go up and it will go down, and sometimes it will trade sideways.

Long-term investors shouldn’t be concerned with timing the market. No one can predict exactly what the market will do tomorrow or next week.

By investing small amounts of money on a regular basis into your retirement account, you’ll absorb more of the bumps in the market.

This is called dollar-cost averaging and it’s an essential part of the Stash way of investing for retirement. Keep adding money on a consistent basis. History has shown that it’s a great way to plan for a warmer future. Pretty comforting, considering we don’t always know what’s around the corner.

Anyone can start investing for retirement — even you

It doesn’t matter how much you get paid or what your net worth is. You’re never too young to start. Take the leap and think long-term. Your future self will thank you.

Make your future money

Learn more about Stash Retire

Start now