Andrew Page
Andrew Page

When it comes to investing, the sooner you start and the longer you wait, the better off you will be. It’s an undeniable fact. But while most of us know we should save and invest, the unfortunate fact is that the majority of us don't. Life just gets in the way, at least that’s the excuse most of us use. Expenses constantly crop up, bills need to be paid, food needs to be put on the table, and as a result most of us claim we simply cannot afford to invest. I hear this constantly when trying to explain the benefits of the DividendKey Course.

What we fail to realise is that we really cannot afford NOT to invest. The fact is you don't need a lot to get started; the vast majority of us in the developed world should be able to easily save a few dollars a day, which is more than adequate to create a very comfortable retirement, provided of course we start as early as we can. But is there any real rush? Does it make any real difference if you just wait a few years?

Consider the example of Bob and Mary. In many ways they have similar situations, the important difference for us is that Mary was sensible enough to start saving money at a young age. At 17, with her first part time job, she resolved to save $40 each week (less than $6 / day). A year later, with $2,168 in her savings account (she has also earned interest along the way) she invests into the share market using nothing more complicated than an index fund that averages 10% pa (which is in fact the long term average of the Aussie market). Importantly, she doesn’t stop there. She continues to save $40 each and every week and at the end of each year she adds that to her investment.

For whatever reason, Bob didn’t start saving until he was 27, ten years after Mary. But because he has a greater earning potential at 27 than Mary did as a teenager, he is able to put away $60 each week, that’s 50% more than Mary. As with Mary, after the first year he invests his savings into the share market, in fact he buys into the exact same index fund. He also continues to top up his holding every 12 months with the money he saves.

The question is this; who do you think will be in a better situation at age 65? Well, despite the extra savings, Bob still ends up well behind Mary. At 65 Mary has over $700,000 more than Bob even though she saved only around 80% of what Bob did.

  Total Amount Saved Balance at 65
Mary $ 99,840.00 $ 2,035,565.36
Bob $118,560.00 $ 1,305,749.04


However, the truly extraordinary fact is that even if Mary stops saving after 10 years, she will essentially equal Bob’s eventual nest egg.

Think about that for a second. Mary saved just $40 each week over 10 years up until she was just 27, or $20,800 altogether. After that she certainly left her money in the market, but she stopped saving altogether and therefore made no additional contributions to her investment. Although Bob didn’t start until he was 27, he continued to save right up until he hit retirement at 65, and he saved a LOT more than Mary; $60 every week for most of his working life, which is a substantial $118,560 in total.

When both are at 65, Mary will have $1,292,645 compared to Bob’s $1,305,749. That is, she is just $13,000 behind, even though she saved only a fraction of what Bob managed to put away. It just doesn’t seem to add up, but I assure you it does (try it yourself).

click chart for more detail
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[Mary Saves $40 each week from the age of 17 in an interest bearing account earning 4.25% pa. She then adds this each year to an index fund which grows at 10%pa. After 10 years, at the age of 27, she stops saving and leaves her investment to continue growing. Bob starts saving $60 per week at the age of 27 in the same interest bearing account, and he adds his savings to the same index fund at the end of every year. He continues to do this until the age of 65. In total Mary saves $20,800, Bob saves $118,560.]

There is no trick here, just the power of compounding and the effects of time. Because Mary started at 17, she had a portfolio worth close to $34,000 by the time she was 27. So although she stopped making subsequent contributions, she nonetheless was well ahead of Bob who had not saved a single cent up to that point. So even though Bob ended up saving a lot more over a much longer period of time, it was barely enough to make up for the annual dollar return that Mary was generating off her investment.

You’ve got to love compounding. As Einstein said it’s the most powerful force in the universe. And Warren Buffet’s great wealth is largely due to this phenomenon. Of course, he manages to get well above average returns, but equally important is the fact that he started investing when he was just 19, rarely sold and reinvested all his income along the way. (By the way, these are exactly the principles we teach in the DividendKey Course!)

Mary really is a young gun of investing, and will be far wealthier than most of her peers who failed to put anything aside and instead just lived for the moment. Parents take note: you too could virtually guarantee a VERY comfortable retirement for your children simply by committing to save a few dollars a day.

Of course in this example we have assumed a consistent annual rate of return, something that simply doesn’t occur in the share market. In reality Mary would have seen the value of her investment swing wildly from one year to the next, but why should that bother her? She knows that over time, her return will be very attractive, despite the occasional bear market. It is the destination that matters here, not the journey. Also, her portfolio will be impacted by the effects of inflation, and it’s likely to be a substantial effect. But so what? Inflation or not, she will be in a much better situation than would otherwise be the case if she failed to do anything.

Oh, to be young again! But the point here isn’t to say that all is lost if you didn’t start saving and investing early. The point is to motivate you to start saving and investing as soon as you can, regardless of your age or personal situation. We could change the rates of return and the amounts saved in our example, but you will always see that starting early has great advantages. No matter what your age, the best time to start investing is now. I’m reminded of an old proverb: “The best time to plant an oak tree is 20 years ago. The second best time is today.”

In the DividendKey course ( we preach the benefits of long term income investing and reveal just how amazingly rewarding it can be. Even the best day traders in the world should put a solid chunk of their profits into ‘boring’ long term holdings, for precisely the reasons outlined here (and more). Trading can net you a great income, but its investing that will build real and enduring wealth. Maybe you will get round to it later this year, if not next year. Either way it won’t make much difference, will it?

Make the market work for you

Andrew Page