Week 3 Day 6: The Earlier You Start

A 22-year-old investing $200/month until age 65 at 7% accumulates roughly $640,000. A 32-year-old investing the same amount needs to invest $420/month to reach the same place. The 22-year-old has time doing the work. The 32-year-old has to make up for lost compounding with more cash.

This is not meant to shame anyone who started late. You start when you start. But if you are young and reading this -- understand the gift you have. Every year of your 20s that you invest, even small amounts, is worth roughly 2-3 years of your 40s in final portfolio value. The math is not fair, but it is real. And if you are starting at 35 or 45 or 55 -- you still have compounding working for you. A 45-year-old who invests $500/month for 20 years at 7% accumulates roughly $260,000. That is still $120,000 of your money plus $140,000 of growth. Compounding still works. It just works harder when you give it more time.

The mathematical concept is the time value of money: a dollar today is worth more than a dollar tomorrow because today's dollar has more time to compound. This is quantified by the present value formula: PV = FV / (1 + r)^n. At 7% over 40 years, a future dollar is worth only $0.067 today -- meaning $1 invested today is worth roughly $15 at retirement. Over 20 years, the same dollar is worth $3.87. The ratio is roughly 4:1 in favor of the earlier investor. This is why financial advisors obsess about starting early: the cost of delay is not linear, it is exponential. Each year of delay costs more than the previous year.