Your Greatest Investment... Time
In this issue of the Martens report I would like to discuss arguably the most important factor of investing... Time. As financial advisors, we are always going on about investing for the long term and encouraging clients to start as early as possible. I thought it might be helpful to show an example that can visually illustrate the benefits.
Let’s assume that two people, Emma and Liam, both were born on the same day (twins). For this example, we’re also going to assume that the twins are turning 20. Emma saves $2,000 each year form ages 20 - 30 (11 years) and then never saves a dime again. Liam doesn’t save anything for the first 10 years but then saves $2,000 a year starting at age 30, until he reaches 65 ($2,000 a year for 36 years).
Also, we’re going to assume that the money they are saving is invested in a well designed portfolio that generates a return of 7% every year (not a guaranteed rate of return, but something I believe is achievable over time). This table shows what happens to their investments over time:
As you can see, despite Liam adding $72,000 (compared to Emma's $22,000) the extra years of compounding still work in Emma's favor with her accumulating $360,621.85 in savings vs. Liam's at $318,674.80. The math is kind of hard to believe so I included the table above for you to follow the progression of growth. It's never too late If you are looking at this table and thinking, "but I'm not 20 years old anymore" don't sweat it, but let's get started. Remember that even starting small can pay off big over time.