Begin Early to Invest - Why a Stitch in Time Will Prove Explosive for You
An Acceler8now.com Investing Education Resource July, 2007
This is probably the most important piece of advice anybody will ever give you. It bears repeating: asking you to begin early to invest - whether in stocks or other financial assets - is about the most precious piece of advice you will be getting from me or anybody else regarding your financial success. Heeding that advice will also prove one of the most important steps you will ever take to position your life for financial stability and, plainly, wealth. It will therefore only be apposite to ask for your undivided attention. The point being made in this piece is that the much-vaunted benefit of investing can be explosively amplified through accelerated timing. Simply put, by commencing your investment action early in life, you position yourself to enjoy a huge multiplier benefit. The reason is simple: time has the uncanny ability to generously grow your investment. This is so because time allows the 'magical' impact of compounding to power up your investment.
In Black and White
Let's not waste words on this subject and go straight for figures that can bring a graphic demo of what is being said. We will look at a hypothetical case which is, however, reflective of common real-life occurrences.
- Start Small Early, Beat Big Late-starter
Think of two guys Jide and Stanley, who left the university the same year, and luckily both got jobs immediately after their NYSC service. Stanley was however more fortunate to land an oil company job (parental connection did the magic!). Jide's was with a stockbroker, where he got paid a tenth of what Stanley was earning. For Jide, however, he quickly learnt lessons in investing, and not having a wealthy background, got determined early to transform his life, even with his relatively poor earning. In contrast, his school-mate, Stanley, who earned a lot of money, didn't quite understand investment. How did they spend their earnings. Jide committed to saving N2,000 of his monthly salary (actually 5%) and investing N24,000 annually. Stanley had a lot of fun and owned all sorts of cutting-edge gadgets and devices: hot cars, high-tech home electronics, mobile devices and all.
It took 20 years before Stanley got a wake-up call, after a well-respected superior invited him and really dressed him down about his scandalous spending profile. The message sank. He was so touched that he immediately invested N500,000. He kept on at N400,000 annually (from monthly savings of N33,000) for the nest 10 years. Meanwhile, Jide had raised his annual investment to N36,000 following a raise, in the sixth year and again to N60,000 in the twelfth year. He got a higher-paying job in the twentieth year and boosted his annual investment to N120,000. Now, let's see a chart of these guys' investments and how they ended up at 30 years of employment, assuming returns rate of 15% over the entire period:
Jide's Investment Profile |
|
Stanley's Investment Profile |
| Yr |
Annual
Accretion |
Total
Capital N |
Annual
Interest N |
Year's
Closing N |
|
Annual
Accretion |
Total
Capital N |
Annual
Interest N |
Year's
Closing N |
| 1 |
24,000 |
20,000 |
3,000 |
23,000 |
|
0 |
0 |
0 |
0 |
| 2 |
24,000 |
47,000 |
7,050 |
54,050 |
|
0 |
0 |
0 |
0 |
| 3 |
24,000 |
78,050 |
11,708 |
89,758 |
|
0 |
0 |
0 |
0 |
| 4 |
24,000 |
113,758 |
17,064 |
130,821 |
|
0 |
0 |
0 |
0 |
| 5 |
24,000 |
154,821 |
23,223 |
178,044 |
|
0 |
0 |
0 |
0 |
| 6 |
36,000 |
214,044 |
32,107 |
246,151 |
|
0 |
0 |
0 |
0 |
| 7 |
36,000 |
282,151 |
42,323 |
324,474 |
|
0 |
0 |
0 |
0 |
| 8 |
36,000 |
360,474 |
54,071 |
414,545 |
|
0 |
0 |
0 |
0 |
| 9 |
36,000 |
450,545 |
67,582 |
518,126 |
|
0 |
0 |
0 |
0 |
| 10 |
36,000 |
554,126 |
83,119 |
637,245 |
|
0 |
0 |
0 |
0 |
| 11 |
36,000 |
673,245 |
100,987 |
774,232 |
|
0 |
0 |
0 |
0 |
| 12 |
60,000 |
834,232 |
125,135 |
959,367 |
|
0 |
0 |
0 |
0 |
| 13 |
60,000 |
1,019,367 |
152,905 |
1,172,272 |
|
0 |
0 |
0 |
0 |
| 14 |
60,000 |
1,232,272 |
184,841 |
1,417,113 |
|
0 |
0 |
0 |
0 |
| 15 |
60,000 |
1,477,113 |
221,567 |
1,698,680 |
|
0 |
0 |
0 |
0 |
| 16 |
60,000 |
1,758,680 |
263,802 |
2,022,481 |
|
0 |
0 |
0 |
0 |
| 17 |
60,000 |
2,082,481 |
312,372 |
2,394,854 |
|
0 |
0 |
0 |
0 |
| 18 |
60,000 |
2,454,854 |
368,228 |
2,823,082 |
|
0 |
0 |
0 |
0 |
| 19 |
60,000 |
2,883,082 |
432,462 |
3,315,544 |
|
0 |
0 |
0 |
0 |
| 20 |
120,000 |
3,435,544 |
515,332 |
3,950,876 |
|
500,000 |
500,000 |
75,000 |
575,000 |
| 21 |
120,000 |
4,070,876 |
610,631 |
4,681,507 |
|
400,000 |
975,000 |
146,250 |
1,121,250 |
| 22 |
120,000 |
4,801,507 |
720,226 |
5,521,733 |
|
400,000 |
1,521,250 |
228,188 |
1,749,438 |
| 23 |
120,000 |
5,641,733 |
846,260 |
6,487,993 |
|
400,000 |
2,149,438 |
322,416 |
2,471,853 |
| 24 |
120,000 |
6,607,993 |
991,199 |
7,599,192 |
|
400,000 |
2,871,853 |
430,778 |
3,302,631 |
| 25 |
120,000 |
7,719,192 |
1,157,879 |
8,877,071 |
|
400,000 |
3,702,631 |
555,395 |
4,258,026 |
| 26 |
120,000 |
8,997,071 |
1,349,561 |
10,346,631 |
|
400,000 |
4,658,026 |
698,704 |
5,356,730 |
| 27 |
120,000 |
10,466,631 |
1,569,995 |
12,036,626 |
|
400,000 |
5,756,730 |
863,509 |
6,620,239 |
| 28 |
120,000 |
12,156,626 |
1,823,494 |
13,980,120 |
|
400,000 |
7,020,239 |
1,053,036 |
8,073,275 |
| 29 |
120,000 |
14,100,120 |
2,115,018 |
16,215,138 |
|
400,000 |
8,473,275 |
1,270,991 |
9,744,266 |
| 30 |
120,000 |
16,335,138 |
2,450,271 |
18,785,409 |
|
400,000 |
10,144,266 |
1,521,640 |
11,665,906 |
| |
2,136,000 |
|
|
18,785,409 |
|
4,500,000 |
|
|
11,665,906 |
- Check the Figures, See the Picture
First, note the point that Stanley was just a late-starter, but in absolute terms invested much more than Jide - in fact 2.1 times (210%) of Jide's (N2,136,000 : N4,500,000). However, Jide ended up with a lot more money (N18.79 million : N11.67 million) for his investment of less that 50% of what Stanley eventually invested. You see the effect of early investment? Again Jide worked under less pressure, spreading his saving (and investment) over time, at bearable figures: first N2,000/month, then N3,000/month, later N5,000/month and finally N10,000/month. These figures are realistic even for a low-paid worker, indicating that nobody should really be poor. Most well-paid jobs place you in a position to invest multiples of what Jide did, meaning you should end with multiples of N18.79m over a 30-year work span. Stanley was lucky that he eventually got jolted into action, but what if he wasn't? Or no longer had a job that empowered him to load up at an accelerated pace of investment? Suppose Jide stretched himself a bit more and plugged in higher figures initially? You can do the math and see what a huge impact it would have left. If he invested in stocks over that entire period, we possibly won't be working with 15% returns. Our stock market has averagely turned out much higher rates of returns for many years running.
Act, Don't Delay
This is graphic enough, don't wait to act. If I knew this much when I started out in employment, it would have been a different story. Do you want to get this message a bit late, like Stanley, like me? Or never, like some unfortunate guys? No matter your level of earnings, you could (and should) take control of your finances and apply simple, actionable principles and investment vehicles to create the wealth you need. Jide's N19m isn't too much money, granted. But many finish a 30-year work life without such investment value in their pocket. Jide, too, could have done better, though it's gratifying that he had the foresight to achieve the much he did. Don't let the lesson here slip through your hands. No better advice!
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