Investing Early vs. Late

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Contributor, Benzinga
July 3, 2023

When is the right time to invest — early in life or later on? Does it even really matter? This age-old question has puzzled many aspiring investors and may have even prevented some from taking that crucial first step. 

Today, Benzinga debunks myths and sheds light on the truth of timing in investments. Whether you're just starting out or pondering late-stage investing, this comprehensive guide will equip you with the insights you need to start investing successfully.

Investing Early vs. Late, Does it Really Matter?

The short answer is: yes, it does matter — with an important caveat. The earlier you start investing, the more time your investments have to grow and compound, which can significantly increase your returns over time. This is particularly true when investing in assets that offer the potential for long-term growth, such as stocks.

Compound interest, often described as interest on interest, is the mechanism by which the value of an investment increases exponentially over time. This means that the returns you earn on your investments start earning their own returns. The power of compounding depends on the time the money is invested, which is why starting early can have such a profound effect. It can also be boosted greatly by reinvesting dividends and other investment income.

Here's a historical example using three investors, John, Mark and Dave. John started investing in 1985 via an S&P 500 index fund with $10,000. By June 2023, 38 years later, his initial $10,000 investment had compounded to $563,270, for an annualized 11.06% return. He achieved this by not avoiding panic-selling and reinvesting dividends. 

On the other hand, Mark was a bit of an investing late bloomer. He didn't start until 2003. Despite making the same investment as John did in an identical S&P 500 index fund, he only had 20 years of growth to work with. As a result, his final portfolio value was smaller at $69,323.

However, while starting investing early clearly offers this mathematical advantage, it does not mean that those who start investing later cannot also make significant financial strides. The key factor here is how effectively and regularly you invest. A disciplined, consistent approach to investing can yield substantial benefits, even when started later in life. This means making steady contributions and investing as frequently as you can.

Take Dave for example. Dave also started investing in 2003, which gives him a 20-year time horizon if he also retires in 2023. However, Dave understood that despite starting late, he could make up for it by aggressively saving and investing consistently. To that end, Dave committed to investing $1,000 every month in an S&P 500 index fund.

The results? Dave's $10,000 initial investment in 2003, plus monthly $1,000 contributions ballooned to $1,031,735 by the end of 2023, beating both John and Mark handily. This example goes to show that despite a late start, savvy investors can still come out ahead by practicing good financial behaviors: staying the course, consistently contributing and reinvesting dividends. 

5 Reasons Why You Should Start Investing as Early as Possible

Understanding the dynamics of investing can seem overwhelming, but when you break it down, it's clear there are some undeniable benefits to starting early. Let's dive into the six compelling reasons why you should kick off your investment journey as soon as possible.

1. Compound Interest

Often referred to as the eighth wonder of the world, compound interest is the process where the interest on your savings earns interest itself. This process creates a snowball effect, allowing your portfolio to grow exponentially over time. The longer your money is invested, the more time it has to compound and increase your returns. Consider reinvesting any dividends or interest income as soon as received and maximizing consistent contributions. 

2. Time Horizon

The earlier you start investing, the longer your investment horizon, which is the amount of time your money is put to work growing before you need to withdraw it. A longer time horizon typically allows for more aggressive investment strategies, as market downturns can be offset by potential future upturns. This process allows you to take on more risk for potentially higher returns over a longer period of time.

3. Risk Tolerance

Investing earlier in life usually means you can afford to take more risks, such as holding a higher proportion of your portfolio in stocks. Younger investors typically have a higher risk tolerance because they have more time to recover from any potential losses. This ability to handle market volatility can open up opportunities for higher returns by investing in riskier assets. 

4. Sequence of Return Risk

This risk entails receiving lower or negative returns early in a period when withdrawals are made, such as during the initial stages of retirement. For a retiree, a series of market downturns one after the other can wreak havoc on their plans. One of the simplest ways to mitigate this risk is to start investing early. With more time in the market, early investors are better positioned to weather periods of poor returns without having to withdraw their investments.

5. Financial Discipline

Investing early encourages a habit of financial discipline. Regularly setting aside money to invest at a young age can help develop budgeting skills and a long-term mindset, which are important aspects of personal finance that can benefit you throughout your life. 

It's Never too Late to Start Investing

While starting to invest early has its advantages, it's crucial to remember that it's never too late to begin your investment journey. Many people may feel discouraged because they believe they're behind or they've missed the opportunity to achieve substantial growth from their investments. However, this is far from the truth. 

Investing is not just about when you start but also about the consistency and dedication you put into it over time. It’s about making regular contributions to your investment portfolio, staying diversified, being patient and allowing the market to do its work. Even if you start later in life, the power of compounding can still significantly benefit you. Plus, individuals often earn more in their later years and therefore have more to invest, so with discipline you can catch up. 

The most important step is taking the decision to start, regardless of your age or circumstances. From that point on, with good investment behaviors and a well-thought-out plan, you can still reap the benefits of investing. Remember, everyone's financial journey is unique, and it's not about where you start, but rather about making the decision to begin. 

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Frequently Asked Questions 


Is 25 too late to start investing?


Not at all! Age 25 is a great time to start investing, as the longer investment horizon allows your returns to compound and grow more over time. Assuming a retirement age of 65, an investor who starts at age 25 will have a 40-year runway to let their portfolio grow.


Is it better to invest early or late?


While it’s better to start investing early because of the advantages of compound interest, portfolio growth and a longer time horizon, it’s never too late to start. Consistency and disciplined investing matter at any age. For example, an older investor who stays the course, consistently makes contributions and maintains a diversified portfolio may end up with a larger nest egg than a younger investor who day-trades meme stocks and penny stocks.


Is it better to save for retirement early or later?


In general, the earlier you start saving for retirement, the better. This action allows more time for your savings to grow, which often results in a larger nest egg for your retirement years. You can still catch up if you’re older, especially once your earning potential is higher in middle age.

About Tony Dong

Tony Dong, MSc, CETF®, is a seasoned investment writer and financial analyst with a wealth of expertise in ETF and mutual fund analysis. With a background in risk management, Tony graduated from Columbia University in 2023, showcasing his commitment to continuous learning and professional development. His insightful contributions have been featured in reputable publications such as U.S. News & World Report, USA Today, Benzinga, The Motley Fool, and TheStreet. Tony’s dedication to providing valuable insights into the world of investing has earned him recognition as a trusted source in the finance industry. Through his writing, he aims to empower investors with the knowledge and tools needed to make informed financial decisions.