Does Waiting to Invest Make That Much of a Difference?


Short answer: Yes.

The sooner you put your dollars to work, the more you’ll benefit in the long run. In fact, when you invest can have a greater impact on the size of your nest egg than the amount you invest.

Need proof? Let’s say you start investing $100 a month in a mix of stocks at age 25. Assuming an average 8-percent annual return, you’d have about $18,500 after 10 years. If you then stopped investing and just let it ride, you’d still have just over $200,000 by age 65! Now, let’s say you wait till you’re 45 and then start investing $250 a month. Given the same assumptions, you’d wind up with about $148,000 by age 65.

How can you invest more and end up with less? Let’s break it down. In the first scenario, you invest $12,000 over 10 years then leave it alone for 30 years. In the second, you invest $60,000 over 20 years. Yet the former strategy nets you more than $50,000 more than the latter. That is the magic of compounding (i.e., the power of interest earning interest and so on). The longer you let your money sit, the larger your fortune can grow on its own.

Okay, we know what you’re thinking. It’s true that when the market goes down, your portfolio can lose value, too—which is why you need a diversified portfolio to help you ride out the turbulence. With a healthy mix of investments, the goal is to have some portions of your portfolio hold up while others might slip and vice versa.

You also need patience. History may not always repeat itself, but the odds of the stock market rising significantly over the long run are high. Just look at Standard & Poor’s 500-stock index: Since its creation in 1957 through February 2018, it’s returned about 7 percent a year, or 10.3 percent a year if you reinvest dividends. That time period includes plenty of bumpy times, but the market rebounded and continued to rise after each tumble.

So don’t let market volatility, or simple procrastination, keep you from investing more now. Investing sooner will help ensure you have more money when you need it later.