Let’s look at three scenarios with three very different 25-year-olds:
Hard-Working Harold makes a minimum wage of $11.40 per hour, and has decided to take control of his future by either earning or saving an extra $11.40 per week, equating to $592.40 per year, to dedicate to long-term investing.
Smart Sue has just graduated from university and has decided to spend less than she makes in order to set aside $200 per month, equating to $2,400 per year for long-term investing.
Lucky-Lazy Luke just inherited $5,000 from his long-lost Granny and has decided to make a one-time contribution to his long-term investing., with no further contributions (not recommended).
Now let’s say they all earn a return of 7% after all financial advisor and investment fees until they turn 65 years old.
Hard-Working Harold will have $118,343! He took is modest savings of $11.40 per week or $592.40 per year and turned it into a pretty big nest egg.
Smart Sue will have a staggering $479,124.
Lucky-Lazy Luke will have $74,872: not nearly enough for a retirement nest egg.
But now let’s say Hard-Working Harold, Smart Sue and Lucky-Lazy Luke’s Current Selves decide to wait one more year to start investing. Well, at age 65:
Hard-Working Harold’s Future Self will be down $8,295 because he waited this one single year.
Smart Sue will cost her Future Self $33,587.
Lucky-Lazy Luke will cost his Future Self $4,898.
But now let’s say Hard-Working Harold, Smart Sue and Lucky-Lazy Luke could have been earning 10% per year in an all-equity portfolio. Here, the costs of waiting just one year to invest become absolutely staggering. At age 65:
Hard-Working Harold’s Future Self has lost $24,390. Let that sink in. That $24,390 is more than he would even contribute, (i.e., $592.40 per year x 40 years = $23,712). Gone because he waited one year!
The same for not so Smart Sue. Her Future Self lost $98,747. Again, that $98,747 is more than she would contribute, (i.e., $2,400 per year x 40 years = $96,000). Gone because she waited one year to invest!
Finally, Lucky-Lazy Luke lost $20,572. That $20,572 is more than four times his original inheritance! Gone because he procrastinated for one year before starting to invest.