Young Investors, Start Early!

Everyone tells you to start investing early, but it can be challenging to understand why people stress it. Here's a visual explanation with Oreo and Kiara.

Reason 1: Not starting early hurts you in the long run.

In this scenario, their starting salary is $100,000, and they both get a yearly raise of 3%. Oreo starts by investing 20% of his portfolio in year 1, and Kiara begins with 35% in year 10. Every 10 years, they add another 10% to their contribution. Kiara will go from 35 to 45% in year 20, then 55% in year 30. They both earn 7% from the stock market annually.

After 40 years, Oreo ends up with $1,340,475 more despite investing $15,835 less.

Reason 2: If you start early, you can give up early

In this scenario, they both invest $20,000 per year. As usual, Kiara starts at year 10 and invests consistently till year 40. Oreo, on the other hand, starts at year 1 but stops at year 10.  They both earn 7% from the stock market annually.

Despite investing for only 10 years, Oreo ends up with $66,368 more.

Reason 3: Earlier contributions account for most of your final returns

In this scenario, Oreo's salary is $100,000, and he gets a yearly raise of 3%. Oreo invests 20% of his salary every year.

This is probably my favorite chart.

In his first ten years, Oreo contributes (red bars) $229,278.
In his last ten years (years 31 -40), he contributes $556,517.

His first $229,278 grows to $2.5 million dollars.
The last $556,517 reaches $810,000.

In his first 10 years, he contributed 15% of his total contributions. But it accounted for over 40% of his final portfolio value by retirement.
In the last 10 years, he contributed 40% of his total contributions. But it accounted for only 13% of his total portfolio.

The earlier contributions are exposed to more market cycles. What's not immediately obvious is how much of our future savings are locked in our final working year.  If we lived longer, this wouldn't matter, but we typically die before the difference becomes insignificant. If you're interested in diving deeper, start with:

Young investors can tilt the game in their favor simply by starting early. Time is  a cheat code.

These models depend on stock market returns. For example, if market returns are subpar, Kiara will end up with more because she saved more. But if returns average out to their historical levels, starting early is better.

Tolusnotes Public Models
Contribution Distribution Starting Salary,$70,000Yearly Raise,3%Yearly Contributions Start,20%Big Contribution Frequency,10Big Contribution Incr.,10%Market Return,7%Year,Salary,Contribution %,Contribution,Contribution To Date,% Total Contributions,Portfolio Total1,$70,000,20%,$14,000,$14...
Check My Math; Change Variables
Meet Oreo & Kiara, our investors.