In the context of investing, the size of your income or even the size of your investment is not the most significant determinant of your success, but rather when you invest. Individuals who invest young and those who wait till later in life will have a difference of hundreds of thousands of dollars.
Below, we discuss why it is so advantageous to start early and what happens when you start late.
The early start: letting time work for you
By investing young, you give your money the greatest benefit of all: time. Time will enable your investments to increase and multiply every year. Compounding refers to the fact that any returns that you get create more returns. The longer you are invested in it, the more the snowball effect.
Imagine you begin investing $150 a month at age 22, with an average return of 7%. By the time you’re 62, your portfolio could grow to nearly $370,000. Now compare that with starting the same $150 monthly investment at age 32. You’d only have around $175,000by 62. Those extra 10 years of growth more than doubleyour final wealth, even though the monthly contributions are the same.
The late start: Playing catch-up
Now imagine waiting until age 32 to begin. You’re still investing $150 a month at the same 7% return. By age 62, your portfolio grows to around $175,000. This is less than half of what the 22-year-old investor has, even though you both contributed the exact same amount each month.
Why the huge difference? Those 10 years that you lost are years when your money was not growing and compounding. You would need to invest close to twice the sum per month to catch up. That is an added strain on your budget in later years when you might also be burdened with mortgages, children, or other financial commitments.
The confidence factor
Investing early also develops financial confidence. You learn to ride the market highs and lows, and you also understand the discipline of making regular investments. When you are old enough, you will be experienced and have a well-built portfolio to your credit.
When you are late, it may be intimidating. The increased pressure to save harder can be stressful. You might even be more influenced to get into risky get-rich-quick schemes that can earn you the lost time.
Both strategies still matter
It is not too late to invest, but it is possible to do it in your youth and get even greater profits. When you are young, you have the liberty, flexibility, and an opportunity to have compounding do most of the heavy lifting. Even seasoned investors like James Rothschild emphasize the importance of long-term growth strategies.
However, it is not too late to begin to save for your retirement and have a buffer against unplanned costs. The point is to begin as soon as possible. More contributions, diversifying investments, and remaining consistent will still make a difference.
Summing up
The figures tell it all when it comes to comparing starting young and starting late. Small investments at an early age can create large amounts of money, whereas waiting can make you work extra hard to get equivalent results.
