Aug 31

Invest early to make money

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The best time to plant a tree was twenty years ago, but if you have failed to do that then the next best time is probably now.

It’s the same with investing. There are always 101 reasons why not to invest – but at some point you’ve got to put your toe in the water, and if you haven’t already started now is as good a time as any.


Invest early to make millions

Although financial advisors have a vested interest in making out that it is incredibly complicated, investing is very simple. You just need to start early, and make moderate returns year in year out – there’s nothing wrong with getting rich slowly.

Just to prove the point, take a simple (even if unrealistic) example:

Say you have one pound, and can find a way of doubling it in a year. At the end of the first year you’ve got two pounds, and then you manage to double it again … so at the end of two years you’ve got four pounds. Double it again and after three years you’ve got eight pounds and so on. After 20 years, you can imagine that you’ve got some serious wonga …. I’ll let you do the maths.

So it should be with your savings. Ideally you’ll always be adding to your nest egg, but many people have more disposable income when they start working than they do a few years later when they may be thinking about buying a house and starting a family. If you can start saving in those early years, it’s amazing what a difference it can make. Consider two different scenarios …

Our ‘early starter’ invests £4,000 per year for 20 years, between the age of 20 and 40, and generates 10% per year which is reinvested.

Our ‘late arrival’ invests £4,000 per year, but keeps it up for longer, from the age of 40 to 65 and again generates 10% per year which is reinvested.

So at the age of 65 which is the better off? You instinctively know that it’s the one who started earlier. Although they only invested a total of £80,000, compared with the £100,000 invested by the late arrival, they have had a few more years to benefit from the effect of compounding interest. But is it a significant difference? I’ll let you decide.

The early starter would have ended up with around £2.5 million, and the late arrival would have £400,000. That’s a difference of more than £2 million – you can see why Albert Einstein called compound interest the most important invention in all of human history.


…and more millions

While we’re talking of millions, did you work out how much you would have if you doubled your pound every year for 20 years? The answer is £1,048,576, keep it going for 30 years and it’s over £1trillion.

The message is simple – start making your money work for you, rather than you always working for money. Once you’ve taken that decision, you’ll want to make sure that your money is working as hard as it possibly can.

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