Video: The 10 vs. 30 Principle
Investing at an early age might seem daunting. The 10 vs. 30 Principle illustrates why starting early, even with a small investment might pay off in the long run. We’re walking you through two examples of basic investment strategies to help you understand why you may want to start investing sooner rather than later. This is also an easy way to see the power of compounding, no matter when you start investing.
[Eric]: Today I wanted to talk to you about the 10 versus 30 principle. This principle teaches you why it’s so important to start investing as soon as possible. And the best way to explain this is to give you guys an example.
So let’s take John and Sally. They’re both 25 years old. They both just started working. Sally decides as soon as she turns 25 that she’s going to start investing and she decides to invest $500 a month every month for the next 10 years until she turns 35. John, on the other hand, decides not to start investing right away, but waits until he turns 35 to start investing. Both of them allow their investments to grow until age 65. At age 65 Sally has $565,000 in her account if her account grows at six and a half percent a year. And if John’s account grows at that same six and a half percent of the year, he has $552,000. But the difference is Sally, who only invested for 10 years invested $60,000 of her own money, whereas John, who invested for 30 years invested 180,000 or three times as much of his own money. Which shows you why it’s so important to invest early, which gives you the best chance of achieving your goals.
Now, most people think, “I’m going to wait until I’m making a bunch of money to start investing.” The challenge with that, as many of you know, as life goes along, there’s more things to spend your money on, whether it’s insurance, whether it’s a house, car, kids, college, different things like that. If you can get in the habit now of investing or right away, that’s going to increase your chances of achieving your goals.
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