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Time

Lesson 3 from: Beginner's Guide to Investing

Erin Lowry/Broke Millennial

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Lesson Info

3. Time

Why does time matter so much in terms of investing? Examine a case study with Erin to see how time functions with compound interest to yield higher returns.

Lesson Info

Time

So let's talk about why time matters so much in the context of investing one. You need it in order to truly maximize the effects of compound interest. The longer time you have, the better it's going to work out for you. The other thing is, as I mentioned already, the market's going to go up and it's going to go down. It doesn't stay consistent. So time also gives you the advantages of weathering those ups and downs of the market so that during the down times it's okay it's gonna come back around and you're going to be able to weather that storm. Let's give you a really life example of this combination powerhouse of time and compound interest. So first we're gonna meet Leslie. Leslie started investing at 25 with her 401 K tell. A lot of us get into the game in the beginning is with her retirement account, and she started putting $400 per month, and also in the case of this example, I'm not even including an employer contribution to a 41 K We're just talking her contributions. So this is...

her boyfriend, future husband Ben, and he started off by investing when he was 35. Leslie starts at 25. Ben's got some stuff to take care of. He's procrastinating. Maybe. Is working on paying off student loans, saving up for other life goals because, like, you know what? My wife's pretty far ahead of me. I'm gonna double down every single month. I'm gonna put in $800. She's only putting in $400. They both plan to retired around 65 and they both receive a average 7% return on their investment over the course of their lives as investors. So let's look at how this pans out reminder that Leslie is investing $400 per month for 40 years. 7% return. She comes in at just shy of a $1,000,000 so $958,248. Her husband, Ben, over here doubles down $800 per month, but only for 30 years. Same return and you can't catch up. So he's at just over 900,000. Not shabby in either case, but the point is, he waited 10 years, tried to double down his contributions and play catch up, and he still wasn't able to catch up to her because that 10 years made a really big difference. So also starting early means that you could be putting away less to achieve the same results, which also gives us much more comfort, especially if we're starting it, let's say 25 feel like, Oh, I can't put a lot of way It really does that up. That snowball effect really works in our favor. Now what if they had just saved this money? They decided I'm too risk averse. I don't want to mess around with the market. I'm just putting this money into a plane savings account. Leslie doesn't even break 1/4 of a $1,000,000 with that same amount over 40 years. Ben actually does win in this scenario with just over 1/4 of a 1,000,000. So they're really in about 25% or less capacity compared to putting their money in the stock market and allowing it to do some of the work for them. I'm gonna keep harping on that point, guys,

Class Materials

Bonus Materials with Purchase

Rookie Investor Cheat Sheet
Keynote

Ratings and Reviews

Tatie Diallo
 

Wonderful course, she explains the basics of investment and why it is important, for a beginner that's the best class ever.

Liza Davis
 

Straight to the point basic investment advice. I would say following her conservative strategy is great for the long haul of low-risk saving for retirement. And a great way to ease into investing without worrying about losing your sbirt.

Mona
 

Nice

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