I read an article which gave an interesting scenario, in which if person A invested starting from 20 to 30, as compared to person B who started from 30-60, surprisingly, at the end of the day, Person A would have more than that of Person B. How does the math work out?
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Adam Wong
30 Sep 2019
Editor-in-chief at The Fifth Person
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Hariz Arthur Maloy
03 Sep 2019
Independent Financial Advisor at Promiseland Independent
Let's do this right now.
Assume you invest 12k/yr @ 6% return.
20yr old to 30 years old. 120k invested. Return @ 6% would be $158,169.50.
You stop investing additional money and let it roll for another 30 years.
$158,169.50 @ 6% after 30 years would be $908,445.30.
Now the same 12k/yr @ 6% return for 30 years. 360k invested.
Return would be $948,698.20.
You'd have returned almost the same amount of money but in the latter case, invested 3 X your capital.
You can simply use the TVM formula to calculate this.
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Yes! This is due to the power of compound interest. The more time you have to compound your wealth, the larger it can potentially grow.
We covered this in one of our articles on how saving $11 a day can make you a millionaire (when invested prudently): https://fifthperson.com/saving-just-11-day-can-...
Hope this helps!