Money Mistake #3 - Not Investing Early and Enough

Compounding is the 8th Wonder of the World. It can either work for you (appreciating assets) or against you (personal debt).

• Person A starts investing $5,000 annually at age 25, and continues until age 35, then stops contributing but leaves the investment to grow until retirement at age 65.

• Person B starts investing $5,000 annually at age 35, and continues until age 65, contributing for 30 years.

Assuming an annual return of 7%, by age 65:

• Person A’s investment would be worth $602,000

• Person B’s investment would be worth $540,000

 Therefore, despite the fact that Person A invested for only 10 years (total investment $50,000), compared to Person B for 30 years (total investment $150,000), their investment would be greater at age 65, purely thanks to the power of compounding.

It is not just about how much you invest, but when you invest, that matters. The earlier you start, the more powerful the compounding effect becomes.

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Stay tuned for number 4 next week.