Jack and Jill – A Fairy Tale or How Jack Lost $97,429
Don’t wait to start investing. The sooner you start the more money you will make.
Once upon a time there lived two friends in a land far far away, both were the same age with the same birthday but very different in all other aspects. Jack was the impatient type, always wanting to “live large” and spending everything he earned. Jill was more patient and a visionary, she always thought long-term.
Jill started investing at the age of 25, she invested $1200 each year and earned 6% annually. Jack ignored Jill’s advice and invested nothing.
When they were both 45 years old, Jill had $44,143 in her portfolio, Jack had $0. Realizing his mistake Jack decided to start investing $2400 each year, double what Jill was investing so that he could catch up.
Both Jack and Jill continued to earn 6% annually. On their 65th birthday Jill had $185,714 in her portfolio and Jack had $88,285 even though they each invested $48,000.
By waiting till the age of 45 to start investing Jack’s portfolio was $97,429 less than Jill’s portfolio.
Jill retired and moved to a warm sunny place. Jack continued to work another 12 years and then moved in with his children. The power of compounding can really be seen here:
Jill started investing 20 years sooner than Jack, and over those 20 years her money started to compound. Here’s a quick look at the first 4 years of Jill’s portfolio:
The magic of compounding is this: each year Jill earns 6% but the 6% is calculated on the value of her portfolio which includes the interest she earned the year before. By the time Jill reached 65 years of age, her portfolio was worth $185,714.
The sooner you start investing the better off you will be. Time is on your side so take advantage of it. Even investing $100 per month (just like Jill) can reap big rewards.
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Jack and Jill Image Courtesy of Update 24hours News Blog