Start investing
By far the most important step in your journey is to start investing. Most of us should have started a long time ago. But rest assured, it is never too early, and never too late, to start investing. Start investing for yourself, for your family, for your children — whatever the motivation, just start. Time is the most important factor in your investing success, and the one that is entirely in your control. You decide when.
To understand why, let me show you the importance of time. Let’s take the example of 100USD that you invest today, at 6% interest/returns per year, for 10, 20 and 30 years:
What do we see? If you invest just one hundred dollars today, and you let it earn 6% a year in average:
1. in 10 years you will have 180 dollars or almost double your money
2. in 20 years you will have 320 dollars, more than tripled your money
3. in 30 years you will have 570 dollars, almost 6 times what you invested
Now let’s take another example: let’s say you or your family want to invest 100USD every month, or 1200 USD per year, for your retirement at 70 years old. I assumed here that in average you will earn 6% per year interest/returns on your savings. Let’s see how things will work out if you start at 20 years old (you invest for 50 years until you are 70), or at 30 years old (you invest for 40 years) or at 40 years old (you invest for 30 years) or at 50 years old (you invest for 20 years):
The first thing I want you to see is simply that in all these scenarios, you will end up with a nice sum of money by the end. It is never too late to start investing. I assumed here you will stop investing at 70 years old, but of course this is not realistic — you will probably keep investing and earning interest your entire life.
However, I want you to also look at the important difference, at 70 years old, between someone who started investing 100 USD per month at 20 years old (they will have 370.000 USD), someone who started at 30 years old (they will have 197.000 USD), someone who started at 40 years old (they will have 101.000USD) and someone who started at 50 years old (they will have 47.000USD).
Investing generally pays off no matter when you start, or for how long you do it, or with how much money. But the most important factor to your success is time: for how long you invest. And this is good, because time is entirely in your control. In a century when it is expected that many of us will live past 100 years old, someone who starts investing at 20 will have an 80 years investing period. Someone who starts at 50, will have a 50 year investing period — the maximum period we assumed in the example above. If you are a relatively healthy 50 year old individual today who starts investing 100USD each month, you can reasonably assume that by the time you are 100, you will be sitting on a 370.000USD cushion — for that trip to Antarctica or to leave to your great grandchildren who will love you that much more.
Investing small amounts results in very large amounts, over long periods of time.
An aside: some very smart and famous investors, billionaires, philanthropists, consider that the best thing governments can do for us is to give each person who is born, 2000USD, in an investment account, without the possibility to withdraw it, either until they become adults, or until they retire for example. Let’s see what this would look like:
By the time the child is 10 years old, their 2000 USD have become 3600 USD — almost doubled!
By the time the young adult is 18 years old, their 2000 USD have become 5700 USD — almost tripled and a nice 18 year old gift!
By the time this adult retires however, at 70, this small 2000 USD gift will have become 118000 USD — a very nice retirement present!
Not such a bad idea is it?
