This post is 683 words, about a 4 min read. Enjoy!
Last week, I wrote on time. Specifically the importance of starting things the moment they come to mind.
In this post, I will illustrate the importance of investing as soon as possible using an example.
In a fictional world, where everyone is named after time and birds for some strange reason. We have our two main characters, Early Bird and Late Owl.
Early Bird is the type that gets up early in the morning to ensure she gets the worm.
Late Owl likes to stay out late and hoot into the middle of the night, terrifying every other creature.
Early Bird and Late Owl learned about investing at the same time from an old bird name Sage Parrott, who just loved to talk.
Early Bird got excited about the prospects of becoming wealthy but more important not having to work as hard later in her life. She immediately started funding her Roth IRA and Personal Brokerage Accounts (weird that in this land they also have investment accounts).
Late Owl believed he had time and could make up for it later on when he was making more money. Plus he believed You Only Live Once, so you might as well live it up.
Early Bird invested $10,000 every year for 10 years. She was able to achieve a market return of 10% per year. It was not always smooth but she persisted. As she got older she had a family. Which made life a bit messy but more exciting and also more expensive. She wanted to experience more things with her family, so she decided to stop investing.
After 10 years of investing, Early Bird now has $175,311.67. $100,000 was her total contribution. She never contributed another dollar for the rest of her working life, which would be another 30 years.
At the same time, Late Owl decides it is time for him to settle down and think more about his future. He remembers the words of the Sage Parrott. He decides he needs to start investing. He begins contributing $10,000 every year he works for the rest of his working age which is 30 years.
After 30 years, Late Owl contributed $300,000 diligently into his Brokerage and Roth IRA accounts. He also achieved the same 10% per year that Early Bird had. His investment portfolio grew to be worth $1,809,434.25.
Early Bird’s portfolio remained invested for the next 30 years. She finally decides it is time for her to leave the workforce and leave off her portfolio. Her portfolio is now worth $3,059,083.86.
Now of course investing is never this linear. However, I believe this illustrates the point. Although both achieved the same results with their investment returns, one person started early and that one decision completely changed everything for them.
Think about all the memories Early Bird was able to have with her family when she could take the extra cash she had and put it into other things. $10,000 extra that she could spend however she pleased.
Maybe it was instrument lessons for her kids.
Maybe it was international trips
Maybe it was on cars
Maybe buying larger houses as the family grew
Maybe she started her own business with the extra cash
Maybe she gave it away
So many things she could now do, during what is supposed to be the messiest part of life. On the other hand, we have Late Owl. He was able to invest consistently but I am sure it cost him heavily and there were so many things he had to give up in order to do that. However, it was the price he had to pay after the time that had passed him by.
This is the Beauty and Danger of Compounding. It can either work powerfully in your favor or completely against you.
So once again, I plead with you. If there is anything you want to accomplish, DO NOT WAIT. You are better off starting and failing now than waiting till later to still fail.
Table of Investments
Recommended Reads
Kelechi Iwuaba on Choosing Success, yes I am recommending myself. This is an article I wrote for HumbleDollar. It is about having rules for your money.
Nick Maggiulli on How Much Income You Need to Be Rich. Trust me. The answer will surprise you