How a 10-Year Head Start Can Transform Your Investment Growth
When it comes to investing, most people focus on having enough money to get started. But financial experts say time is a more important factor.
In the realm of investing, a decade can make a huge difference in your investment growth. Here's what a 10-year head start can do for you.
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Starting Early Beats Waiting Until You Have More
Many people assume building wealth through investing requires large contributions, but it may be simpler than that.
Alondra Garcia, chartered financial analyst (CFA) and senior portfolio manager at Ellevest, leaned into the saying “time in the market beats timing the market.”
“The earlier you start, the more money you will end up with — assuming you're not taking distributions from your portfolio," she explained.
What people may not realize is that the average return of the stock market going back 100 years is about 10% annualized, Garcia said. While this number doesn't sound impressive in absolute terms, “when you do the math on 10% compounded over several decades, the cumulative growth is very significant."
This means that “the sooner you get started, the better, because time is the greatest advantage of an investor,” said Robert Johnson, CFA and professor of finance at Creighton University.
He cited Warren Buffett’s description of compounding interest being like a snowball going downhill: “As that snowball goes down the hill, it collects more and more snow.”
He laid out how someone starting at age 25 and investing $485 monthly at 10% could grow that money to more than $1 million by age 55. In contrast, Johnson said, just starting at age 35 requires roughly $1,400 monthly to reach the same goal.
Why So Many Investors Wait Too Long To Begin
Despite the benefits, many young adults still delay investing. Garcia pointed to inflation in housing, childcare and healthcare as making it difficult for people to scrape out extra to invest.
According to Garcia, it’s also a budgeting problem: "Without a good grasp on inflows and outflows, it's hard to appropriately budget for investing."
In her work she finds that women, in particular, tend to wait until they have all the information available to take action. “This can lead to analysis paralysis," she added.
Johnathan Ness, certified public accountant (CPA) and founder of Know Money, Yes Money, sees it partly as a problem of financial literacy, which still isn't required in the majority of the U.S.
"These kids simply weren't taught how much their decisions now impact their future,” Ness explained.
Small Contributions Can Grow Into Big Returns
A common misconception is that investing only makes sense once someone has accumulated significant savings.
Garcia pushed back on that: "You don't need a lot of money to start. Even $50 a month can compound into a significant amount over decades."
It’s also common for those already living paycheck to paycheck to have difficulty thinking beyond their expenses, Ness said. "They view the $20 they have leftover at the end of each month as inconsequential, not knowing that even that little, invested every month from 18 on, means $50,000, after inflation and taxes, on retirement."
Automating retirement contributions can make it easier. "One must make saving money a habit," Johnson said.
Put Your Head Start To Work Now
No matter how little you have to start with, Garcia stressed, “Start today.” She recommended opening a taxable brokerage account. Then set up an automatic monthly or biweekly contribution from your checking account.
"You can start with $50 and watch it go up and down as the market moves. But stay the course and keep investing,” she said.
Ness also recommended investing in a low-fee, diversified equity index fund “and continue to invest consistently whether the market is up, down or sideways."
After all, he said, "the path to financial independence is paved with sacrifice. The earlier you start, the fewer sacrifices you'll have to make."
Investors don’t need more money; they need more time. While nobody can go back and invest 10 years ago, starting today can still give future wealth decades to compound and grow.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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