Time invested is so important that Jack can even stop adding to his investments and still have more than Jill at age 65.
If Jack were to contribute $200 per month from age 25 to 35 – contributing only $24,000 over 10 years – his investments would be worth almost $300,000 at age 65.
Jill continually invests $200 per month between ages 35 and 65 but still ends up with only $245,000 at 65. Even though she contributes three times as much as Jack over her lifetime ($72,000), because she missed those first 10 years of investing, Jack amasses more.
Jack's earnings will grow so large, they'll exceed all of his contributions combined. After 20 years of investing, Jack contributed $48,000 total. That same year, his $48,000 earned over $56,000. By year 25, his earnings ($103,000) are over 70% larger than his total contributions ($60,000).
This is why time is so important in investing: Given enough time, your earnings can compound to take on a life of their own. Even better is they can become self-sustainable. When your money is earning enough money that you no longer need to work, you've achieved financial independence.
You don't have to start investing $1,916 a month right away. It's OK to start small, as long as you start. You can always increase your contributions later.
Say you start with $200 a month. If you maintained those contributions for 40 years, you could accumulate about $500,000. But if you were able to increase your contributions by 5% each year, your portfolio could grow to more than $1 million in that same timeframe.
Just imagine how much you could accumulate starting with $200 per month and increasing your contributions by 10% each year? (Hint: It's more than $2.6 million in 40 years.)
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