Best Investment Advice: Do It

A lot of people are quite willing to sell their investment advice books about the best stocks, bonds or GIC to invest in, but I offer some very basic investment advice:

Start putting something away now, and do it regularly for as long as you possibly can.

There are two benefits to putting money away over a long period of time:

1. 
   
   By putting money away, you accumulate a sum, which builds your savings.
2. The largest benefit is compound interest, which is your interest earning interest.  This effect is so powerful that, at 5% annual interest, if you put $50 away each month from your 20th birthday to your 30th birthday, and then left the money alone until your 65th birthday you would have more money saved than if you waited until you were 35 years old and put $50 away every month for 30 years.

In the above example you would have about $44,500 by starting early and contributing for only 10 years, vs. about $41,500 by starting late but contributing for a much longer period of time.

If you kept up the contributions starting at age 20 and going to 65 years old, you would actually have over $100,000, at only $50/month.  The actual cash you would put into the investment would over 45 years be $27,000, but interest would grow it to over $100,000.  That is the power of compound interest.  It’s too bad that most of us don’t really understand this lesson until we are in our 30’s.

Imagine being able to do that for your child from birth, and then having them take over the contribution when they are able.  65 years of $50/month at 5% interest would grow to over $295,000.  In the long-term, does $50/month seem so difficult know it could be valued at so much later in life?

So, while there are lots of investment opportunities out there, I have to say the most important thing is to start early and be consistent.  The types of investments you choose and the risks you are willing to take with your investments are topics for another day.