The benefit of investing early in your life (investments) - Make more money by starting early
Most of the individuals do not plan out their financials early in the life. One of the prime reasons they feel is that what’s the hurry - there’s enough time left. The later you start the weaker you end. Finance and growth are a function of time and not luck. Let us understand this through a hypothetical example.
Study the two finance and investment return tables below:
Investment matures at the Age of: 50
Investment frequency: Yearly (beginning of the year)
Investment amount: $10000
Investment rate of return: 10% (assumed)
Table I (investment age: 21)
(In $$$$)
Age Inflow Opening Earned Closing balance
21 10000 1000 100 1100
22 10000 11100 1110 12210
23 10000 22210 2221 24431
24 10000 34431 3443 37874
25 10000 47874 4787 52662
26 10000 62662 6266 68928
27 10000 78928 7893 86820
28 10000 96820 9682 106502
29 10000 116502 11650 128153
30 10000 138153 13815 151968
31 10000 161968 16197 178165
32 10000 188165 18816 206981
33 10000 216981 21698 238679
34 10000 248679 24868 273547
35 10000 283547 28355 311902
36 10000 321902 32190 354092
37 10000 364092 36409 400501
38 10000 410501 41050 451552
39 10000 461552 46155 507707
40 10000 517707 51771 569477
41 10000 579477 57948 637425
42 10000 647425 64743 712168
43 10000 722168 72217 794385
44 10000 804385 80438 884823
45 10000 894823 89482 984305
46 10000 994305 99431 1093736
47 10000 1103736 110374 1214109
48 10000 1224109 122411 1346520
49 10000 1356520 135652 1492172
50 10000 1502172 150217 1652390
Table II (investment age: 31)
(In $$$$)
Age Inflow Opening Earned Closing balance
31 10000 1000 100 1100
32 10000 11100 1110 12210
33 10000 22210 2221 24431
34 10000 34431 3443 37874
35 10000 47874 4787 52662
36 10000 62662 6266 68928
37 10000 78928 7893 86820
38 10000 96820 9682 106502
39 10000 116502 11650 128153
40 10000 138153 13815 151968
41 10000 161968 16197 178165
42 10000 188165 18816 206981
43 10000 216981 21698 238679
44 10000 248679 24868 273547
45 10000 283547 28355 311902
46 10000 321902 32190 354092
47 10000 364092 36409 400501
48 10000 410501 41050 451552
49 10000 461552 46155 507707
50 10000 517707 51771 569477
Age Inflow Opening Earned Closing balance
In both the investment tables the yearly cash investments and the yearly rate of return on investments are same. The only difference is the age at which the person starts investing his money. In Table I the person starts investing $ 1000 at the age of 21 and accumulates a financial wealth of whopping $ 1.65 million by the time he has turned 50.
In Table II the person starts investing $ 1000 at the age of 31 and accumulates a financial wealthy of $ 0.56 million.The striking difference is the value of the accumulated investment wealth at the age 50 for both the investors. For the investor in the Table II, accumulated wealth is a paltry $0.56 million compared to the whopping $1.65 million for the investor of Table I. Just by starting 10 years early, you can go on to make thrice of what you would make otherwise at the age of 50.
Amazing ! Isn’t it ? This is the power of financial compounding ! The time value of money ! Just imagine the difference if the assumed rate of returns are higher than what has been fed into the table.
