It would have to be to:
The first part is crucial, and it is very important to be a long-term investor for reasons that I elaborate on in How and Why to Be a Long-Term Investor. To see its impact, consider that if you start saving $10K per year at 22, and hypothetically earn a 7% annual rate of return, then your outcome would be as follows:
What if you decided to wait 10 years, and instead begin saving and investing 10 years later, at 32? Your results using the same return assumption of 7% would look like this:
As you can see, delaying investing by a decade under these assumptions would result in total savings at age 65 of less than half of what you could have had if you had started saving at 22. What about if you decided that you would start at 32, but make up for lost time by saving more? In this example, even if you were to double the amount you save annually to $20K per year starting at 32, you would still have less savings at age 65 than had you consistently saved an invested from the age of 22.
Finally, the second point of compounding the capital is crucial. In my recent article on active vs. passive investing, Why Passive Investing Is an Excellent Default Choice - an Active Investor’s View, I argued that passive investing is an excellent default choice for most. One way to do that would be through low-cost index funds, consistently dollar-cost averaging and never trying to time the market.
In the U.S., Vanguard does this well and at a low cost. Because the investors in their funds essentially own the company, they don’t have an incentive to try to sell you something you don’t need, and I think of them as a gold standard for sound advice for people starting out. Check out this section of their site: How to invest | Vanguard
Well, that was a great answer .. ahem, I mean question ;-)
Written Aug 31, 2018