The Benefits of Investing Early

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When I first started working and making my own money, it never occurred to me to invest my earnings.

At best, I would just put a portion in my savings account and spend the rest however I want.

Looking back, if given the chance to relive those times, I would have chosen to allot another portion of my income to investing.

I used to consider investing as something that old people do – old people with lots of extra cash.

What I didn’t know back then and what I realized a few years ago was that – it’s always better to invest as early as you can in your life.

To give you a simple illustration why, here’s a couple of scenarios that I came up with.

Scenario 1:

• Juan sets aside P1,000 a month and puts it in an investment that earns 10% per annum.
• After 5 years, Pedro begins investing P2,000 a month under the same instrument.

At the end of 10 years, here’s what will happen:

You’ll see that by year 10, both Juan and Pedro have already invested the same amount, but the gross value of Juan’s investment is more than that of Pedro’s.

Here’s another and more convincing example why you should invest early.

Scenario 2:

• Maria invests P1,000 a month in an instrument that earns 10% per annum. She stops after 4 years.
• At that point, Rosa begins investing P1,000 a month on the same investment and continues to do it for the next 6 years.

These are the gross value of their investments after 10 years:

Despite the fact that Rosa invested more money, Maria still has a larger investment value than her. And think how much more Maria would have if she didn’t stop investing.

I hope that these two scenarios made you realize that investing early has its clear financial advantages. And more importantly, you’re never too young to start investing today.

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This entry was posted by Fitz Villafuerte on Friday, June 12th, 2009 at 5:46 am and is filed under Investing, Mindsetting. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. If it's your first time to comment here, they will be held for moderation. Off-topic responses may be deleted.