When Is the Best Time to Start Investing
31522
Finance
May 17, 2007
Mikahamilton
When Is the Best Time to Start Investing
The answer to this question is easy yesterday. Of course, assuming that you haven't begun investing yet, then the answer has to be now. Unfortunately, many of us fail to understand how valuable even a few years can be in making a difference to the funds that you have earned during your investing. This is due to the power of compound interest. The longer that you have to invest, or the longer that you let your investments earn a return, the more incredible an amount of money you can earn from your investments. Let's take a look at a few examples. There is an easy to remember investment formula called the rule of 72. It is an easy way to help you estimate how much time you will need in order to double your investment. Now, this rule is useful for those who have a large sum of money to invest all at once, but it demonstrates the power of interest. If you take the number 72 and divide it by your return, or interest rate, then you will know the number of years that it takes for you to double your money. For example, if you invest your money at a 6% interest rate, then 72 divided by 6 is 12. Meaning it will take 12 years for you to double your money. Now, if you have a specific goal in mind and you know how long that you have before you need your money to double, you can use the same formula to figure out what kind of return you will need to reach that goal. For example, let's say that you need to double your money in 8 years. Divide 72 by 8 and you get 9. This means that you would need to earn 9% on your investment in order for the money to double in 8 years. The more money you start with, the more you will have earned, of course. But if you, like many of us, don't have a lump sum to invest all at once, you should still invest as soon as possible. The longer the length of time that you leave money to compound on itself, the more money you will earn. And what's even more interesting is that the growth can be startling if you leave the money for 30 or 40 years as opposed to just 10 or 20. For example, let's say that you begin investing $300 dollars a month at age 20. If you add $300 every month, and allow that money to sit, compounding the interest that you earn, with an 8% interest rate you will have $52,220 at the end of 10 years. You will have put 120 months of deposits into the account, or $36,000. So your interest would have earned you $16,200. Now, what if that same savings plan continued for 20 years? You would have invested $72,000, but your account would show a balance of $164,880. At 30 years, your $108,000 investment would be worth $407,880. But at 40 years, your $144,000 invested would have become an amazing $932,760. Remember that as you age, your income will likely increase as well. So whereas now, you might be able to afford only $50 a month, in 10 years you might be able to invest $500 a month. The important thing is that you start immediately, and that you invest regularly. Then sit back and watch your money grow.
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