Written by Ivan Fletcher
We often hear the message that it’s ‘time in the market’ not ‘timing the market’.
Well today I thought I would demonstrate the impact of starting sooner than later (ie more time in the market).
This example compares 2 young individuals – Bruno the Baker and Billy the barman.
Bruno is an early starter in both his job and his investing.
Billy starts later with both his job and his investing.
Bruno opens an investment account at age 19 and for eight consecutive years invests $2,000 into the share market and then stops investing. He earns an average return of 9% p.a.
Billy – makes no contributions until age 26 and then starts contributing at the same rate of $2,000 every year for the next 25 years until age 65 at the same average return of 9% p.a.
Bruno increases his initial investment by 10.9 times what he invested.
Billy increases his initial investment by 2.7 times what he invested.
Despite the fact that Bruno stopped investing after eight years he was still better off by age 50 than Billy who invested much more over time but started a little later.
The difference is the power of compounding your return for longer.
The table below demonstrates the year-by-year balance.