Ten years of contributions made early beat thirty years made late, but only above a return you can calculate, and the reason sits in the last decade.
At an illustrative 7 per cent a year, someone who invests 250 a month from 25 to 34 and then stops for good has 337,610 at 65, more than the 303,219 of someone who invests the same 250 a month for thirty years from 35. The early investor pays in 30,000; the late one pays in 90,000. The early start wins only while the return stays above 6.28 per cent a year.
Worked in full in Stock Market Investing for Beginners by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
This is the most quoted illustration in beginner investing, and it is usually shown as a chart with no numbers. Here it is as a calculation you can check line by line, with the condition under which it stops being true.
| Saver | Ages contributing | Years paying in | Paid in |
|---|---|---|---|
| Early: starts at 25, stops at 35 | 25 to 34 | 10 | 30,000 |
| Late: starts at 35 | 35 to 64 | 30 | 90,000 |
| Both: starts at 25, never stops | 25 to 64 | 40 | 120,000 |
The amount is 250 a month, treated as 3,000 paid at the start of each year. The return is 7 per cent a year, after fees, reinvested. Everyone stops measuring at 65. Nobody can promise 7 per cent; it is used because it is a common round figure for a long-run diversified equity portfolio, and the sensitivity below shows what happens at other rates.
Illustration, not advice. Every figure here is nominal, before tax and inflation, and rests on assumed returns that no fund guarantees; real markets do not deliver a smooth 7 per cent. The comparison shows how the arithmetic of time works. It is not a recommendation about how much any individual should invest or in what, which depends on circumstances this example does not know.
Each 3,000 grows for the number of years left until 65. A payment made at 25 compounds for 40 years; one made at 35 compounds for 30. The value at 65 is the sum of every payment grown to that date.
Value at 65 = Σ payment × (1 + r)years to 65
Early saver = FV of 10 payments at 35, then × (1 + r)30
In Excel, for the early saver: =FV(7%,10,-3000,0,1)*(1+7%)^30. For the late saver: =FV(7%,30,-3000,0,1). The final argument 1 places each payment at the start of the year.
The early saver's ten payments are worth 44,351 at 35. Nothing more is added. That balance then compounds for thirty years at 7 per cent, a factor of 7.61, to reach 337,610. The late saver's thirty payments, each compounding for between one and thirty years, reach 303,219.
| Saver | Paid in | Value at 65 | Growth | Value per 1 paid in |
|---|---|---|---|---|
| Early, 25 to 34 | 30,000 | 337,610 | 307,610 | 11.3 |
| Late, 35 to 64 | 90,000 | 303,219 | 213,219 | 3.4 |
| Both, 25 to 64 | 120,000 | 640,829 | 520,829 | 5.3 |
The early saver finishes 34,390 ahead with a third of the money. The saver who does both, which is the real point of the illustration, ends with 640,829, and the first ten years supply 52.7 per cent of it. Those ten years cost 30,000 of the 120,000 paid in.
Where the money appears. The early saver's balance is 171,624 at 55 and 337,610 at 65. Almost half of the final figure, 49.2 per cent, arrives in the last ten years, two decades after the last payment. Judged at 35, her strategy had produced 44,351. The years that made it work are the ones in which she did nothing.
The illustration depends on the rate. Three times the money paid in is a large advantage, and compounding has to be strong enough to overcome it.
| Return a year | Early saver | Late saver | Early minus late |
|---|---|---|---|
| 4% | 121,495 | 174,985 | −53,490 |
| 5% | 171,237 | 209,282 | −38,045 |
| 6% | 240,738 | 251,405 | −10,667 |
| 7% | 337,610 | 303,219 | 34,390 |
| 8% | 472,306 | 367,038 | 105,268 |
The two savers tie at 6.28 per cent. Below it the late saver wins on volume; above it the early saver wins on time. The tie rate does not depend on the monthly amount, only on the two schedules, so it holds for 100 a month or 1,000.
The more useful sensitivity is the start age, holding contributions to 65:
| Start age | Paid in | Value at 65 | Shortfall against starting at 25 |
|---|---|---|---|
| 25 | 120,000 | 640,829 | 0% |
| 30 | 105,000 | 443,740 | 31% |
| 35 | 90,000 | 303,219 | 53% |
| 40 | 75,000 | 203,029 | 68% |
| 45 | 60,000 | 131,596 | 79% |
Starting at 35 rather than 25 removes a quarter of the payments and more than half of the result. To catch up, the 35-year-old needs 6,340 a year, about 528 a month, which is 2.11 times the contribution. A single year of delay at 25 costs 44,923 at 65, roughly 15.0 times the 3,000 that was not invested, because one amount invested at 25 grows 14.97 times by 65.
The common mistake is to read the illustration as "ten years is enough" and stop. The early saver beats the late saver, but she is left with barely half of what continuing would have given her: 337,610 against 640,829. The lesson is to start early and keep going, not to start early instead of keeping going.
The second mistake is to forget that the illustration rests on the return. At 7 per cent it is a striking result; at 5 per cent it reverses. The return that matters is after fees, which is why the cost of a fund belongs in the same calculation: one point of annual charges takes a beginner's 7 per cent to 6, and the early saver's lead disappears. The effect of fees on a lifetime pot is worked in what one percentage point of fees actually costs, and a steady monthly plan over thirty years in how much 500 a month grows to in 30 years.
At an illustrative 7 per cent, ten years of 250 a month from 25 end at 337,610, ahead of thirty years from 35 at 303,219, and the two tie at 6.28 per cent. The early years matter most because each payment made then compounds the longest, but the best result belongs to the saver who starts early and does not stop. The free workbook for this book runs the same comparison on your own amount, return and ages, and solves the tie rate for you.
About twice as much. At an illustrative 7 per cent a year, someone investing 250 a month from 25 to 65 ends with 640,829. To reach the same figure starting at 35 takes 6,340 a year, about 528 a month, or 2.11 times the contribution, for thirty years. The ten missing years cannot be bought back at the same price.
No. Ten years of contributions from 25 beat thirty years from 35 only if the return is above 6.28 per cent a year. At 6 per cent the late investor finishes 10,667 ahead and at 4 per cent 53,490 ahead, because three times the money in outweighs a weaker compounding effect. The early start wins most when returns are high.
At an illustrative 7 per cent, delaying a 40-year plan of 3,000 a year from 25 to 26 costs 44,923 at 65. That is about 15.0 times the 3,000 not invested that year, because the first contribution compounds the longest: one amount invested at 25 grows 14.97 times by 65, against 7.61 times for one invested at 35.
This article is one calculation from Stock Market Investing for Beginners. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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