The Weekly Update 4/28/2023
The graphic above shows the different account outcomes of four different types of systematic investors or savers. These four hypothetical people invest the same amount of money each month, but at different times in their lives and for different durations.
The blue is the consistent investor – this person began systematically investing at age 25 and continued to do so until age 65, earning 7% per year.
The grey is the early investor – this person also began systematically investing at age 25, but they stopped at age 35, earning 7% per year.
The purple is the latest investor – this person didn’t start systematically investing until age 35, but continued to do so until age 65, earning 7% per year.
The green is the consistent saver and NOT an investor – this person saved the same amount of money for the same amount of time as the blue person, but because this person kept his money in savings at 2.3% return per year and didn’t invest for a return of 7% per year, they have dramatically less funds at age 65.
Clearly, the blue person has reaped the most benefits from investing early and consistently for a long duration of time. The key here is compounding interest. Over time investments earn interest and year after year the interest begins to earn interest i.e. compounding compound interest! Earning money on your already “free” money!
The power of time can be life changing – notice that the grey person saved only one third of the amount of the purple person, yet because he started earlier, he had an additional 10 years of compound interest, which put him ahead in the long run.
Moral of the story: Don’t underestimate the power of time, compound interest, and investing versus savings. It is clear that the person who took advantage of all three components did exceptionally better than everyone else.
I am interested in your thoughts, comments, and questions!
Brittany N. Jarocki, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Investing involves risk. Loss, including loss of principal, may occur. No strategy assures success or protects against loss. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.