Congrats to the Class of 2012

Congratulations to the Class of 2012.

Even though you are just starting out on your working life, now is the perfect time to begin planning your financial future. Making wise decisions in the first few years of your career can result in hundreds of thousands of additional dollars in your retirement funds.

There is nothing more powerful in the investment world than compounding returns. In order to take full advantage of compounding returns, you need lots of time for your regular investment contributions to mature into the coveted seven figure financial portfolio.

The following three scenarios illustrate the power of the time value of money.

In scenario 2, a $6,000 investment is made every year for ten years only, beginning at age 25. A total of $60,000 is invested, assuming an 8% annual return, by the time you reach 65, your investment portfolio will total more than one million dollars!

Compare Scenario 2 with Scenario 3, in which instead of starting at age 25, the $6,000 annual investment amount is started at age 35. And instead of investing for 10 years only, Scenario 2 assumes investing each year through age 65 for a total amount invested of $186,000.

You’ll end up with more money in Scenario 3 right? After all, you are investing $126,000 more in scenario 3, so it has to be more? Wrong! You will actually have $200,000 more in Scenario 2 than Scenario 3. That is the power of the time value of money.

So don’t delay investing for your future, pay yourself first

 

Scenario 1
Assumptions:
8% Annual Return Every Year
Start at age of 25
$6,000 Invested every year until age 65
Age	Beg Amt	Amt Inv	Inv Gain	End Inv Value
25	-	6,000	480	6,480
26	6,480	6,000	998	13,478
27	13,478	6,000	1,558	21,037
28	21,037	6,000	2,163	29,200
29	29,200	6,000	2,816	38,016
30	38,016	6,000	3,521	47,537
31	47,537	6,000	4,283	57,820
32	57,820	6,000	5,106	68,925
33	68,925	6,000	5,994	80,919
34	80,919	6,000	6,954	93,873
35	93,873	6,000	7,990	107,863
36	107,863	6,000	9,109	122,972
37	122,972	6,000	10,318	139,290
38	139,290	6,000	11,623	156,913
39	156,913	6,000	13,033	175,946
40	175,946	6,000	14,556	196,501
41	196,501	6,000	16,200	218,701
42	218,701	6,000	17,976	242,678
43	242,678	6,000	19,894	268,572
44	268,572	6,000	21,966	296,538
45	296,538	6,000	24,203	326,741
46	326,741	6,000	26,619	359,360
47	359,360	6,000	29,229	394,589
48	394,589	6,000	32,047	432,636
49	432,636	6,000	35,091	473,726
50	473,726	6,000	38,378	518,105
51	518,105	6,000	41,928	566,033
52	566,033	6,000	45,763	617,796
53	617,796	6,000	49,904	673,699
54	673,699	6,000	54,376	734,075
55	734,075	6,000	59,206	799,281
56	799,281	6,000	64,422	869,704
57	869,704	6,000	70,056	945,760
58	945,760	6,000	76,141	1,027,901
59	1,027,901	6,000	82,712	1,116,613
60	1,116,613	6,000	89,809	1,212,422
61	1,212,422	6,000	97,474	1,315,896
62	1,315,896	6,000	105,752	1,427,647
63	1,427,647	6,000	114,692	1,548,339
64	1,548,339	6,000	124,347	1,678,686
65	1,678,686	6,000	134,775	1,819,461
		246,000

 

 

Scenario 2
Assumptions:
8% Annual Return Every Year
Start at age of 25
$6,000 Invested for first 10 years only
Age	Beg Amt	Amt Inv	Inv Gain	End Inv Value
25	-	6,000	480	6,480
26	6,480	6,000	998	13,478
27	13,478	6,000	1,558	21,037
28	21,037	6,000	2,163	29,200
29	29,200	6,000	2,816	38,016
30	38,016	6,000	3,521	47,537
31	47,537	6,000	4,283	57,820
32	57,820	6,000	5,106	68,925
33	68,925	6,000	5,994	80,919
34	80,919	6,000	6,954	93,873
35	93,873	-	7,510	101,383
36	101,383	-	8,111	109,493
37	109,493	-	8,759	118,253
38	118,253	-	9,460	127,713
39	127,713	-	10,217	137,930
40	137,930	-	11,034	148,965
41	148,965	-	11,917	160,882
42	160,882	-	12,871	173,752
43	173,752	-	13,900	187,652
44	187,652	-	15,012	202,665
45	202,665	-	16,213	218,878
46	218,878	-	17,510	236,388
47	236,388	-	18,911	255,299
48	255,299	-	20,424	275,723
49	275,723	-	22,058	297,781
50	297,781	-	23,822	321,603
51	321,603	-	25,728	347,332
52	347,332	-	27,787	375,118
53	375,118	-	30,009	405,127
54	405,127	-	32,410	437,538
55	437,538	-	35,003	472,541
56	472,541	-	37,803	510,344
57	510,344	-	40,828	551,171
58	551,171	-	44,094	595,265
59	595,265	-	47,621	642,886
60	642,886	-	51,431	694,317
61	694,317	-	55,545	749,863
62	749,863	-	59,989	809,852
63	809,852	-	64,788	874,640
64	874,640	-	69,971	944,611
65	944,611	-	75,569	1,020,180
		60,000

 

 

Scenario 3
Assumptions:
8% Annual Return Every Year
Start at age of 35
$6,000 Invested every year until age 65
Age	Beg Amt	Amt Inv	Inv Gain	End Inv Value
25	-	-	-	-
26	-	-	-	-
27	-	-	-	-
28	-	-	-	-
29	-	-	-	-
30	-	-	-	-
31	-	-	-	-
32	-	-	-	-
33	-	-	-	-
34	-	-	-	-
35	-	6,000	480	6,480
36	6,480	6,000	998	13,478
37	13,478	6,000	1,558	21,037
38	21,037	6,000	2,163	29,200
39	29,200	6,000	2,816	38,016
40	38,016	6,000	3,521	47,537
41	47,537	6,000	4,283	57,820
42	57,820	6,000	5,106	68,925
43	68,925	6,000	5,994	80,919
44	80,919	6,000	6,954	93,873
45	93,873	6,000	7,990	107,863
46	107,863	6,000	9,109	122,972
47	122,972	6,000	10,318	139,290
48	139,290	6,000	11,623	156,913
49	156,913	6,000	13,033	175,946
50	175,946	6,000	14,556	196,501
51	196,501	6,000	16,200	218,701
52	218,701	6,000	17,976	242,678
53	242,678	6,000	19,894	268,572
54	268,572	6,000	21,966	296,538
55	296,538	6,000	24,203	326,741
56	326,741	6,000	26,619	359,360
57	359,360	6,000	29,229	394,589
58	394,589	6,000	32,047	432,636
59	432,636	6,000	35,091	473,726
60	473,726	6,000	38,378	518,105
61	518,105	6,000	41,928	566,033
62	566,033	6,000	45,763	617,796
63	617,796	6,000	49,904	673,699
64	673,699	6,000	54,376	734,075
65	734,075	6,000	59,206	799,281
		186,000

So don’t delay investing for your future, pay yourself first and you’ll never regret it.

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Tags: compounding returns, investing, time value of money