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Putting off investing can cost you a lot of extra money because you won’t benefit as much from compound interest. Find out what you need to know.
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Investing money can help you end up with a big brokerage account balance because you no longer have to work for every dollar that comes your way. The money that goes out of your checking account and into the stock market can start to work for you. You’ll earn a return on your investment (hopefully). That return can be reinvested, so you’ll have a larger balance in the future that you earn returns on.
When your returns earn you more returns, that’s called compound growth. And the more time you have for it to work, the wealthier you can become. Just picture the process like a snowball rolling down a hill. On its first rotation, it will pick up a little more snow, then even more on the second rotation, and more each time after that. So the more rotations you have, or the earlier you start investing, the bigger your wealth can grow.
Just what would it cost you if you wait to start investing, though? Here’s what you need to know.
This is how much a delay in investing can cost you
When you put off investing money for your future, compound growth does not work nearly as well for you because you don’t have as much time, so you’ll make a whole lot less money in the end.
The table below shows how much less you’d end up with in your nest egg by age 65 if you got started at different ages, invested a steady $500 a month, and earned a 10% average annual return.
As you can see, you’ll lose out on hundreds of thousands of dollars in potential profits if you wait only a few years to begin investing. Most people can’t afford to pass up on all of the potential gains they can make — so you definitely don’t want to wait to start putting your money into the market.
How can you get started investing today
Looking at that table, it’s easy to understand why you should get started investing right away. But it can be harder to actually make it happen.
The good news is, you don’t have to invest a ton or know a lot about stocks to make a big impact on your future wealth. You can open a brokerage account online with a few simple clicks with one of many discount online brokers that don’t charge commission.
And you can invest in index funds, like an S&P 500 index fund that tracks the performance of 500 large U.S. companies and that has consistently earned 10% average annual returns. You can find one easily using your broker’s ETF screener — just be sure to pick one with low fees and a consistent track record of performance.
As for finding money to invest, try tracking your spending for 30 days to identify areas you can make cuts to. You might also try lowering a fixed expense by buying a cheaper used car, canceling a club or membership, or refinancing debt at a lower rate. These strategies could help you free up the funds to put into your brokerage account.
If you take these steps, you can avoid the huge costs of delayed investing and get your money into the market today. You’ll be very glad you did.
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