To truly understand the power of investing earl, take a look at this quote from Warren buffet…
“I started investing at the age of 11, but I regret that I started late”
If a man like Warren buffet, an investment czar and billionaire at age 51, former richest man in the world, currently valued at $76.1billion, believes that his starting to invest at age 11 was late, then imagine what could have been if he managed to start earlier.
When we are young, wide-eyed, brazen and ready to enjoy the good things in life, it can be quite difficult to try to live with the maxim “spend only what is left after saving” it is undoubtedly more attractive to us to save and invest only what is left after spending. Let me give you reasons why the former should be more appealing.
The most obvious reason why you should start early is that starting early gives you time to accumulate more wealth. It is not rocket science that if I start investing at age 20, by age 40, I should have a lot more money than if I started at 35. The key to this is taking advantage of the “Power of Compounding”, which Albert Einstein described as the 8th wonder of the world.
Simply speaking, the power of compounding is the compound interest accrued on an investment over a long period of time, the longer the time, the higher the gross value of the investment. Here is an illustration;
- Juan sets aside $1,000 a month and puts it in an investment that earns 10% annually.
- 5 years later, Pedro begins investing $2,000 a month with the same investment instrument
At the end of 10 years, this is what will happen:
Juan will have accrued $210,374, while Pedro accrues just $161,174 for starting 5years later. Its just basic math.
Broader Investment Alternatives
If you start early, there will be various forms of investment instruments to choose from, as well as the flexibility to switch when any of them becomes stale or unprofitable. Allowing you to invest in riskier assets with a higher return potential. This advantage dwindles as you get older, because your financial responsibilities increase and your appetite for risk reduces.
Goal Oriented Planning
Early investment enables you to better align your financial goals, making it easier for you to plan. Things like wedding, housing, car purchases, child care, medical expenses and the occasional vacation are better planned ahead of time. These financially tasking responsibilities will be a lot easier with substantial investment savings to fall back on.
Lower Expenses At Youth
Perhaps the most self-explanatory. There’s certainly little or no serious responsibilities in your youth. It is so much easier to save and invest in your 20s and 30s, than when you are married with 3 kids and boatload of financial responsibilities.
If I started investing $1000 monthly from age 25, and with annual return of 10%. The rule of compound interest states that in 10 years I would have accumulated $210, 000. In 15 to 20 more years that amount will double or even triple so that by age 50, I should be worth close to a million dollars from my investment returns. Which will enable me kickback and retire, and focus on those emotionally uplifting hobbies I’ve always yearned for. Sounds really appealing right?
Finally, the guaranteed end of every early smart investment made, is the financial freedom it inevitably affords. You won’t spend your later years counting costs and hoping to make ends meet. Rather you’ll have the freedom to take that vacation, get yourself or your wife that dream car, and take your family on that luxury cruise, with no heavy financial burden on you.
Overall, investing early has its clear and undeniable advantages as I’ve outlined, you just have to start soon enough, because it is never too early or too late to tap into the power of early investment. Now, don’t go feeling it’s too late just because you’re in your fifties. Every investment counts, especially if you have a way of making it appreciate quickly with time. We usually recommend experienced traders that investors copy and get the same result.