This post was originally posted on my finance & economy blog: Down to Finance
Albert Einstein is often quoted as saying “Compound Interest is the 8th wonder of the world; it is the most powerful force.”
The reason investing is powerful is because of compound interest. For the past ~80 years, the stock market has averaged an annual return of roughly 10%, without accounting for inflation. This figure varies depending on who you ask, so let’s be conservative and use just 8%.
If you start investing at the age of 22 and manage to put in just $500 into the stock market every month for the next 8 years and simply just STOP, you will retire with over $1.1 million dollars (assuming you retire at 65).
Now $500 a month is quite manageable, and in this scenario, you only have to save and invest your money from the ages 22-30 and just STOP, then you are set to retire with over a million dollars. Your total investments (the actual money you contribute) totals $48,000.
Now let’s say you start putting aside money at the age of 30 instead of 22. In this scenario, you’ll have to save $500 every month for the next 35 YEARS to retire with roughly the same amount of money. The total principal would be $210,000.
So, when should you start investing?
As EARLY as possible!
(even if the market is a bit rough right now. Buy things on discount!