Why Your First 10 Years of Investing Are the Most Important

With investing, it pays to start early: decades before you need the money, if you can.

Listen as personal finance expert Paul Merriman and his co-author Richard Buck explain it:

Imagine you're saving a constant $5,000 a year from age 21 to 65, a total of 45 years. Assuming a steady 8% compound return, you wind up with $1,932,520 at age 65.

The majority of it, 55.4%, came from that first decade of savings. For every $1 you saved in that period, you wind up with about $21.40.

— Paul Merriman and Richard Buck

Look at it from another perspective. If 31-year-old you starts saving $5,000 a year, your retirement nest egg will be $861,580. That's pretty good, but it would have been $1.93 million if had started at 21.

That is a difference of over $1 million, even though you only saved an extra $50,000 during those first 10 years.

Why does the money you saved first end up earning the most? It generates much larger gains because it has more time to do so. And every dollar that money returns, right from the beginning, has more years to compound and generate more gains.

This is the reason some advisors tell parents to lend your children $10,000 to invest in stocks?

One young woman got such a loan from her parents. It enabled her to contribute to her company's retirement plan and get the benefit of a company match. She doubled her money in an instant.

Your kids might be irresponsible spendthrifts. Never fear. There's a strategy for that.

Just tell your children that, if they end up throwing the money away, it will be the last money they ever get. Most of the time, that will work.

No matter what age you are today, put time on your side. Start now, even if that means starting small. You won't be sorry.

Today's insight from Merriman and Buck come from their 2020 book, We're Talking Millions! The book is free to download. Get the PDF version and the audiobook from their website. 

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