Give Your Pennies More TIme To Make Dollars Start Young

Give Your Pennies More Time To Make Dollars. Start Young

Pennies make dollars.  The more time the pennies have, the more dollars they make.  And we can never buy more time.  Even now at 27, I feel short on time left to let the time value of money and miracle of compounding returns make their play.

Here is a graph businesses insider did where they compared the returns of an investor starting at 25, 45, and 40 under the following scenarios.

  • Investor 1: Starts at 25 and invests $300 per month.
  • Investor 2: Starts at 35 and invests $300 per month.
  • Investor 3: Starts at 40 and invests $600 per month.

It assumed a retirement age of 65 and relatively low return at 5% annually.  Even with a relatively low return over a long horizon, there is a stark difference between ending value.

saving graph

In the end this is where they would stand:

Contributions Ending Value
Investor 1 $144,000 $460,000
Investor 2 $108,000 $251,000
Investor 3 $180,000 $359,00

Now if investor 1 had just gotten 2% better return, 7% annually, which is not farfetched at all, their ending value would be $792,037.

So the big take away is clearly, invest now.  And the cool thing is, it is super easy to start investing now.  20 years ago you needed to physically go to brokers office, with thousands of dollars before they let you in the door, and then ultimately (most likely) pay exorbitant fees.  Today you can just open an account an account with Betterment or any other robo advisor with literally a few dollars and your off.  Ultimately it doesn’t matter what you invest in (as long as it is a good investment),  the worst thing you can do is not have exposure to the market.

Of course many won’t.  There’s fear associated with investing.  While most can clearly see that the market goes up over time, actual investing is delayed, and delayed, in hopes of a ‘better’ time. There’s always some dark cloud of economic doom and gloom lingering off in the distance.  The fed, the dollar value, russia, corruption, debt, whatever the media is pushing today.

For those concerned with that, I suggest you read this other post.  You also need to consider the benefits of dollar cost averaging which makes you less susceptible to the disposition effect.

I also suggest reading: What If You Invested $1,000 Per Month For The Last 10 Years.

Founder of a home service / specialty trade contracting company (think patio’s and deck) with a focus on customer experience. Quantitative investor. Data driven marketer. Runner.

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