The Graph That Changed My Life

When you start investing is far more important than how much you invest or the investments you make. The first time I saw this argument was in a freshman college business class at the University of Evansville. Our dean at the time, Dr. Greg Rawski, was giving our class a lecture on the basics of retirement savings. I don’t remember the specific numbers or the source of the article but I definitely remember the implication.

The article highlighted a scenario where one person began investing at around 25 and quite investing at around 35 and another person began investing at 35 and continued to do so for the next few decades. 

I couldn’t believe what I was seeing; I mean I could but I didn’t realize the difference a few years would make. The information I was looking at showed the early saver coming out with far more savings despite having only saved roughly half the amount of money! I thought to myself “My gosh, can you imagine what the difference would be if the early saver kept on saving?”

The results were striking enough to stick with me years later as I write this. And since I can’t find the article or remember the specifics, I decided to make my own analysis. As a professional financial planner I’ve adopted, as my civic duty, to spread as far and wide the implications of not beginning your investments as young as you can. 

When You Start Is More Important Than How Long You Invest

The first point I want to highlight is just how important it is to start at an early age. In the chart below, you see two people. Person A starts investing $5,000/yr at age 18 until they are 30 – 12 years. Person B starts investing $5,000/yr at age 30 until they are 60 – 30 years. 

What’s so striking to me about this image is the fact that Person B never even comes close to catching up despite investing for more than 2.5x as long and despite investing almost 2.5x the amount of money over that time frame! This next graph shows you the difference between how much Person A (early saver) and Person B (late saver) invested over their working life.

When You Start is More Important Than How Much You Save

Now at this point, you could reasonably make the argument that Person B having waited also was likely to be able to invest more than the 18 to 20 something-year-old Person A. So I ran another spreadsheet to see what it might look like if Person A did the exact same thing – investing $5,000/yr from 18 to 30 – but Person B invested $10,000/yr from 30 to 60, i.e. what if they invested twice the amount of money each year to play “catch-up”.

Shockingly, Person B (late saver) now investing 2x the money every year will not catch up to Person A (early saver) until their late 40s. And remember, Person A isn’t even putting any more money away! Not only that, but at the end of our projection Person A (early saver) has an account worth $647,868.81, compared to Person B (late saver) $697,395.99. That’s a mere $50,000 difference despite having invested nearly 5x times the amount of money! As you can see from the graph below Person A (early saver) invests $65,000 over 12 years and Person B (later saver) invests $310,000 over 30 years.

When You Start Investing is More Important Than What You Invest In

There’s one last analysis I want to do: What if we keep the same assumptions as the first analysis but increase the rate of return Person B (late saver) gets? So Person A (early saver) invests $5,000/yr for 12 years starting at age 18 and gets a 4.9% inflation-adjusted return (7% nominal return, 2% inflation). Person B (late saver) invests $5,000 for 30 years starting at age 30 but gets a very nice 7.84% inflation-adjusted return (10% nominal return, 2% inflation). 

Alas, Person B (late saver) still cannot catch up with Person A (early saver). Compound returns have been doing their magic for too long and the only way Person B will catch up is to invest far more dollars. This last point is important because I think people put far too much importance on the rate of return they are earning and too little to how much they are saving. I think you’re setting yourself up for failure by focusing more on something you cannot control, i.e. the rate of return on your investments. Meanwhile, you are focusing less on that which you actually can exert a degree of control; how much money you save and invest.  


The moral of this story is to start investing now! It’s more important than how much you put away and even what you put it in. If you have no idea how to invest, you can hire a guy like me to help you. But you certainly don’t need a guy like me to make investments for yourself, even if you’re not exactly sure how to start. It’s more important that you start now than making the “perfect” investment.

For other similar articles of mine, check out this article covering an analysis of workplace retirement contributions.

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