Good morning & happy Monday!
“Timing the market is a fools game, whereas time in the market is your greatest natural advantage.”
– Nick Murray, financial author
With the kids back to school I thought this might be an opportune week to talk about the power of time when it comes to investing. There is quite simply no substitute for time.
This would be a great email to forward to your kids, grandkids, any young person you would like to see succeed financially. The lessons discussed here are nothing short of life changing for young people who take action.
To illustrate this let’s assume I put $500/month into an investment making an 8% average compounded rate (we are discussing no specific investment idea, simply doing math).
I am 43 years old, so if I invest for 22 years (to age 65) then I would have put in $132,000 and the value of that investment would be $361,283. Not too bad.
Now, if my oldest daughter who is 23 years invested $500/month until she is 65 (42 years) then her $252,000 investment would have grown to $2,074,482! Wow!
Let’s take it a step further, if my grandson who was born this year invested $500/month until he is 65 then his $390,000 investment would be worth a whopping $13,376,904! Are you kidding me?!
Same rate of return, all of us saving the same amount of money … the only difference is TIME! And as you can see … it’s a BIG DIFFERENCE!
Check this out … let’s say my grandson saved $500/month every month of his life and he lives to age 100 … any idea on how much that $600,000 ($500/month x 100 years) he invested would be worth?
How about $219,090,826!
$600,000 invested turns into over $200 million!
That is INSANE!
But the “secret sauce” is time. There is no substitute.
I’m kinda having fun here (numbers nerd alert 😉) so let’s go to the next level on this …
We saw above that my grandson saving $500/month at an 8% growth rate for 65 years would be worth $13,376,904.
Let’s try to level the playing field at bit here and give me some advantages to offset my grandson’s time advantage. In this hypothetical scenario let’s say I get a 12% rate of return (instead of my grandson’s 8%) and I save $5,000/month (10 times more than the $500/month my grandson is saving). Where do you think I land at age 65 (22 years from now)?
$6,422,241.
Are you kidding me?!?! I save 10 times more ($5,000/month vs $500/month) and I get a 50% better return (12% vs 8%) and he still has more than double what I have at age 65 (me = $6,422,241, grandson = $13,376,904).
See how powerful time is in the investment equation! Those who understand this and act on it have such a tremendous advantage over those who don’t.
If I had to boil down this entire message into two words they would be: SAVE EARLY!
There is so much noise in the financial world, in my opinion the vast majority of it can be tuned out. Stick to the fundamentals, and there is no financial principle more fundamental than saving early.
Thank you for allowing me to be a part of your journey. Please let me know if there is anything I can do to support you going forward.
Make it a great week ahead!