I’m often asked what the most important metric is in investing.
My answer is simple: Time.
And in investing, it can make the seemingly impossible possible.
The more time you have to invest, the better off you are.
You can rebuild from market disasters or even your own costly mistakes.
Because of that, I push everyone to start investing as early as possible. I know in the beginning it seems small and insignificant… almost embarrassing. But remember, time can take a small stake and grow it into a mountain of wealth.
Let me show you exactly what I mean…
If you start investing at 20 years old, you need to tuck away a mere $2 per day to become a millionaire by 65 – $2.00!
That’s it… a mere $730 per year.
Of course, that money needs to be invested and average a 12% return per year. (Though that’s easier to accomplish than you might think.)
Over the past five years, small caps on the Russell 2000 averaged more than 14% annually, while Russell 2000 growth stocks averaged more than 15% annual returns.
People make thousands of excuses for why they don’t invest.
Often, people delay investing, thinking they’ll have more money down the road.
Surveys show 53% of people who don’t own stocks say it’s because they can’t afford to.
But that’s a trap. The longer you put it off, the worse it becomes.
The current median annual salary for Americans 20 to 24 years old is $29,952. That’s $576 per week.
That means an individual in this age bracket would need to put away less than 2.5% of their annual salary each year to become a millionaire by age 65. And that percentage shrinks over time as their salary increases.
But as more time slips away, the more difficult investing becomes.
Let’s say you’re 55 years old. To become a millionaire by 65, you’d have to save and invest $156.12 per day.
That’s $56,984 per year!
The median annual salary for Americans 55 to 64 years old is $50,440 per year, or $970 per week.
More than 100% of an individual’s salary would have to be invested every single year.
Here’s how much you must save and invest each day in five-year increments to become a millionaire by age 65…
Looking at the chart, the amount needed to be saved per day between ages 20 and 25 increases 78.5%. The amount needed to be saved per day between ages 20 and 55 increases 7,706%!
The tragedy is that 57% of Americans have less than $1,000 saved. And even more shocking is 39% have no money in savings. On top of that, around half of all Americans have no retirement savings at all.
That’s why every time I hear someone say, “I’ll start investing in a couple years when I have more money,” I tell them they’re hurting only themselves. The longer you wait and waste that time, the more expensive it becomes.
But if you start with the right mindset and understand the importance of time, you can easily find yourself well ahead of the game.
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Source: Investment U