Of course.
And even over time - timing matters.
Start early and leave it alone a long time.
Ha!
That's what I told my kids. Start early, increase what you add as you get pay raises. If you do it right, you can invest for 20 years and then never have to add another dime.
Postpone some gratification to let time work it's magic of compounded returns.
At least one has taken it to heart.
If someone puts the same sort of bite out of their earnings for 20 years, one starting at age 25 going to 45 and one starting at 45 with at the same periodic investment, the one starting at 45 will never catch up.
Example numbers: and assuming 9.4% annual return, so a full percentage point lower than the historical average.
Person A starts at $300 / month for the first year, or $3600 for the year. Increase contributions by 3% each year, so $3708 the second year on up to $6312 in the 20th year.
That person will have $250k after 20 years. Never put another dime in it for the next 20, and they will have $1.5 million.
Person B starts at year 21 putting in $6502/year and increases contributions at the same 3% ending up at $11401 in year 40.
At the end of the 40 years A has just under the $1.5 million and B has $449k
A had to contribute $93133
B had to contribute $174711
Cost of waiting 20 years to start = ($1.5 million - $449k) + ($174,811 - $93133) or about $1.133 million give or take.
Start early. Drive the used car instead of taking on a $700/month car payment. Drive the one you can get for $300-$400/month and put the other $300-400 in an index fund.
I'm not going to say no debt because debt is just a tool, a lever that one can use or abuse.
My strategy is to leave margin in my life. Neither my home nor my car cost anywhere near what "they" tell me I can afford.
Start early, don't be stupid about how you "treat yowself" and let time and compounding returns do it's magic.
At the average rate of return in my obviously contrived scenario, by year 9 your earnings equal or exceed your contributions. Between years 14 and 15, your earnings are double your contributions. By year 38, your earnings are 10x what you would be contributing had you kept contributing at the 3% per year increase.
I wish someone would have sat down with me when I was 20-25 and explained this to me. So I'm somewhere between, not to mention losing some to a divorce in the early 2000s.
But I'll still be okay
It's a boring strategy, but it works for me.
