Will waiting to make investments make a significant difference?

Simply stated, the sooner that you put your money to work, the greater the benefits will be over time. In fact, when you make your investment can actually have a far greater impact on your retirement than the amount of money you invest.

Here’s an example. Suppose you started investing $100 a month in a variety of stocks when you were 25. Assuming you averaged 8% annual return on your money, you would have about $18,500 after 10 years. If you decided to stop investing and just let that sit, you would still have accumulated over $200,000 by age 65! Now, suppose you wait until you are 45 and started to invest $250 a month. Given the same annual rate of return, you would invest $60,000 and end up with only about $148,000 by age 65.

How is it possible to invest over 3 times more and still end up with less? Under the first scenario, you would invest $12,000 over a 10 year period and then leave it alone for 30 years. In the second, you would invest $60,000 over 20 years. Yet the first investment strategy will net you over $50,000 more than the second. That is the magic of compounding (i.e., the power of your interest earning interest and so on). The longer you allow your money to sit, the greater your fortune will grow on its own.

I know what you’re thinking. Yes, it’s true that if the market declines, your portfolio could lose part of its value. This is why you need to diversify your portfolio to help you balance out the turbulence. If you have a good mix of investments, there is a greater chance that some portions of your portfolio will still do well while others might slip and vice versa.

You also have to have patience. Even though history does not always repeat itself, the odds of the stock values increasing significantly over time are still very good. Take a look at the S&P 500 index. Since it was created in 1957 through February 2018, it has returned an average of about 7% per year, or 10.3% per year if you were to reinvest your dividends. There were plenty of times during that period that the market suffered setbacks, but the market rebounded and continued to rise after each fall.

You can’t let volatility in the market, or even simple procrastination, stop you from investing now. Investing, even a small amount, sooner will help to ensure that you have more money available when you need it later.