The Power of Starting Early: The Ridiculous and Ever Increasing Cost of Delay - Part 2

Prepare to be amazed - part 2!

You've likely heard about the magic of compound interest and how it can turn even small investment amounts into a substantial nest egg over time. But just how powerful is this concept of compounding? And what is the potential impact of starting your investing journey at an earlier age?

Let's look at an example of Mike and Mary. At age 25 Mary decides to start investing ￡100 per month into a tax free investment called an Individual Savings Account (ISA). She does this for 10 years and then stops work to start a family and stops investing.

Assuming an annual return of 7% (historically the stock market has achieved more than this over the long-term) by investing in a low-cost passive fund containing thousands of the most well funded and innovative businesses in the world, she accrues a pot of ￡19,651 after 10 years. Very nice, thank you.

Her other half, Mike then takes up the mantle and because of inflation he starts to invest ￡120 per month for the next 20 years, while Mary who is no longer contributing simply leaves her money invested for the next 20 years.

Let's see where they are when Mike stops investing. Mike has now accrued a very nice pot of ￡67,029 dwarfing Mary's investment of ￡19,651, or so you would think.

But wait, Mary already had ￡19,651 invested before Mike started and this sum has been compounding for 20 more years. Mary's pot is now worth ￡76,042.

Mike has been regularly contributing for twice as long and has invested ￡28,800 in total which is ￡16,800 more than Mary and she still has ￡9,013 more than Mike.

How the hell did that happen???

They then both leave their funds invested for another 10 years. Here is what the end result looks like:

• Mike has a pot of ￡131,855
• Mary has a pot of ￡149,585

Mike will never catch Mary and the longer the money remains invested the further she will pull away from him. And all because of the power of compounding. I wish they would teach this stuff in schools.

The lesson? When you give your investments more time to compound, even modest amounts can grow into fortunes over multiple decades. Starting early and simply letting the power of compounding do its thing has an astonishing effect over time and you will have to invest much less than the person who leaves it late.

Let's say that Mike and Mary are very generous and they just leave the money invested for another 35 years until thay are 90 for their grandchildren. Here's what the final totals look like:

• Mike will have left the grandkids ￡1,407,732
• Mary will have left the grandkids ￡1,597,024

She is starting to leave Mike well behind.

Of course, many people don't have the funds or income to start building an investment portfolio. But the next best thing is to begin investing as soon as you enter the workforce and have a steady pay cheque. Every year you delay is another year of missed compound growth that can never be recovered.

The effect is so powerful because of how exponential maths works. When your investment earnings begin earning even more earnings on themselves, the growth accelerates rapidly without any further contributions! Time is truly your most valuable asset when investing for the long haul.

Understandably, retirement can feel like a far-off milestone when you're just beginning your career. But the habits and disciplines you put in place today can make an incredible difference decades down the road. Not only will your money work harder through compounding, but you also benefit from developing good financial habits early that carry through your peak earning years.

The sooner you start investing, the sooner you can tap into this "eighth wonder of the world" - the incredible power of compound interest working relentlessly in your favour over 40+ years. So don't delay - get started today and make time your biggest ally!

If you missed the first part of the cost of delay, you can find it here: https://www.dhirubhai.net/pulse/power-starting-early-ridiculous-ever-increasing-cost-delay-legassick-gyuoe/?trackingId=%2BYsFnDKFSQnJzyjDcX3M%2Fw%3D%3D