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Investing – Why it is Important to Start Early

Becoming old is one of the worst fears people have. I know that first hand, having passed the age of 60 a few years ago. The main fear that people have is that they are unable to achieve the goals they set out to achieve by the time they retire or sooner.

A good strategy that I’ve been implementing for decades is long term investing. It will help you make the aging part a bit less daunting, as the older you get, the richer you will become.

When it comes to investing for the long term, the amount of wealth that you accumulate will increase the most in your later years. That makes sense, because if you are making 10% per year, that amount to 1000$ off of your 10K$ portfolio and 50K$ off of a 500K$ portfolio.

The more time you allow for the portfolio to grow, the bigger it will get and the more it will generate. Another example of a the advantages of starting early is that if we assume you are able to make roughly 10% per year, which is the stock market average return for the past 100 years, you would have to invest the following amounts depending on your starting age in order to reach 1.000.000$ by the age of 60:

  • 2413$ per month if you’re starting at 45 years old
  • 754$ per month if you’re starting at 35 years old,
  • 264$ per month if you’re starting at 25 years old.

Now provided that you are retiring at the age of 65, which gives you five years extra, compared to the previous numbers, your portfolio would have grown to the following amounts, compared to 1M$, in the previous example:

  • 1.832.000$ if starting at 45 and investing 2413$ per month
  • 1.704.408$ if starting at 35 and investing 754$ per month
  • 1.669.557$ if starting at 25 and investing 265$ per month.

As you can see here, only 5 years can make a huge difference. You would need to invest almost 3 times less when starting at 25 or 35. It is also natural that your ability to invest depends on your income, which will grow with age, in most cases. For that it is also reasonable to invest a set % of your income.

A lot depends on the amount of return you are able to get. When saving for retirement, it would be reasonable to look into less risky strategies to make sure you won’t lose your account. Riskier strategies (such as the Etoro strategy, outlined in my previous article), are good for shorter time capital accumulation, while long term goals should be addressed differently.

If you’re interested in the subject, check out this investment calculator to calculate this based on your own circumstances.

Conclusion:

If there is one thing that you should take home from this article, it should be that you have to start early when it comes to saving for retirement. 5 years can make a life altering difference as you saw from the calculations above.

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