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Assumptions
In This Study
Why It Matters To Start Early
This
study raises a key point about the importance of time to investors.
The 21-year-old investor profiled here put in $330,000 dollars.
But not every one of them did the same amount of work for her.
Dollar for dollar, she got a much better deal for the money she
invested in her 20s than the money she invested in her 50s.
If she had waited until
she was 30 to start this program (investing $5,000 a year for
the first 10 years), she would have contributed 95 percent of
the same lifetime dollars as if she had started at age 21. But
she would have received only 59 percent of the lifetime benefit
in dollars.
Table A, shows the
results on a dollars-in, dollars-out basis for each decade of
the investments she made.
| Table A: Results of investments, by decade | |||
| Investments made | Dollars invested | Total benefit to investor and heirs | Dollars out for each dollar invested |
| 21-29 | $18,000 | $9,405.325 | 522.52 |
| 30-39 | $50,000 | $7,659,145 | 153.18 |
| 40-49 | $100,000 | $4,154,002 | 41.54 |
| 50-60 | $165,000 | $1,836,165 | 11.13 |
| Total | $333,000 | $23,054,637 | 69.23 |
The $18,000 she invested in her 20s was
only 5.4 percent of the total she saved over 40 years. But it
gave her $9.4 million, or 41 percent of the total value. As you
can see in the right-hand column, once a period of time is gone,
even much larger investments may not be able to make up the lost
opportunity.
This leads me to what
I think is the biggest lesson from these calculations: Invest
early! And if you yourself can't invest early, encourage somebody
who is young to do so. That concept should not be very hard to
sell. After all, what's not to like about getting $522 instead
of $11.13? (The difference is much more dramatic if you look
at individual years. The per-dollar return on the $2,000 invested
on her 21st birthday was $833; on the $15,000 she invested on
her 60th birthday, it was only $5.70.)
