It’s been said that the three most important factors in real estate are location, location, location. Well, the three most important factors in investing are start now, start now, start now!
The Power of Compounding
Albert Einstein reportedly said that compounding is the most powerful force in the world. I don’t know if he really said that or not, but the idea is not so crazy. For example, if the Native Americans had invested the $24 they received from selling Manhattan Island in 1626 at a compound annual return of 10% (which is roughly equal to what the stock market has returned over the last 84 years), by the end of 2009 they would have had roughly $188,365,924,942,420,000!!! That is over $188 quadrillion! Clearly, compounding is powerful!
The scary thing about it is if the Native Americans had procrastinated and didn’t get around to investing until 1627, just one year later, it would have cost them about $17,124,174,994,765,400! That is over $17 quadrillion! Procrastination is obviously very costly!
What about real life?
Okay, okay. You might be saying to yourself, “Is this guy nuts? I’m not going to invest for nearly 4 centuries!” So let’s look at a very achievable example. Let’s say that you decide to invest $2,000 on each birthday starting when you are 25 and make your last payment on your 64th birthday. If you achieved a 10% compound annual return, you would have about $893,000 on your 65th birthday (Happy Birthday!). Not bad for an $80,000 investment spread out over 40 years. But let’s say that you managed to convince yourself to delay beginning your investment program (Nah! That would never happen!). Let’s look at how much you would have and how much the delay would cost you.
| Delay | Wealth | Cost |
| 1 year | $810,000 | $ 83,000 |
| 5 years | $547,000 | $346,000 |
| 10 years | $332,000 | $561,000 |
| 15 years | $199,000 | $694,000 |
| 20 years | $116,000 | $777,000 |
[Note: Technically, these numbers assume a constant rate of 10% a year, which is not realistic even though the market has shown a compound annual return of about 10% over the long run. However, the concept is still the same even if you vary the rate of return from year to year. The fact remains that procrastination is very costly.]
Are you starting to feel a little sick at how much money you have already lost by waiting? And if your planned annual investments were instead doubled to $4,000, the costs of waiting would also double. Ouch!!!
The conclusion is simple. If you are serious about becoming wealthy, you need to stop procrastinating and start investing.
So what are you waiting for?
START NOW!!!
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