(Image generated by Google Gemini - Nano Banana Pro)
Over the summer, I had an amazing experience interning at a company in New York. Having been surrounded by people in their early 20s for the past three years at UCLA, I wanted to seek advice from people more established in their careers and find out what they wished they had done earlier. I spoke to the Head of Client Strategy & Analytics at the time and asked him the question: "If you could give advice to your younger self, what would it be?"
His answer was seemingly simple: “Invest early on.”
This answer raised more questions for me. How early on? How much? Invest in what?
Everyone tells you to put your money into an index fund. Some get it done in their 20s, some in their 30s, maybe even 40s.
The real question is: how much do you really lose by waiting?
You don't have to do the math, because I've done it for you! Here's a calculator I created. Input either a monthly, yearly, or one-time investment, your age, and figure out how much you'd lose by waiting to invest in the S&P500 (calculations adjusted for inflation).
The Price of Waiting Calculator
See how much delaying could cost you (assuming 7% annual return)
Waiting until 30 instead of starting at 25 costs you:
$164,752
by age 65
| Start Age | At Age 35 | At Age 45 | At Age 55 | At Age 65 | At Age 75 |
|---|---|---|---|---|---|
| 25 (Now) | $34,617 | $104,185 | $243,994 | $524,963 | $1,089,614 |
| 30 | $14,319 | $63,392 | $162,014 | $360,211 | $758,519 |
| 35 | -- | $34,617 | $104,185 | $243,994 | $524,963 |
| 40 | -- | $14,319 | $63,392 | $162,014 | $360,211 |
| 45 | -- | -- | $34,617 | $104,185 | $243,994 |
| 50 | -- | -- | $14,319 | $63,392 | $162,014 |
| 55 | -- | -- | -- | $34,617 | $104,185 |
| 60 | -- | -- | -- | $14,319 | $63,392 |
| 65 | -- | -- | -- | -- | $34,617 |
Growth Over Time
Assumes 7% annual return (historical inflation-adjusted S&P 500 average). Actual returns will vary.
Compound Interest
Ever heard of the famous problem: "Would you rather get a lump sum of $1 Million or $1 that doubles everyday for the next 30 days?"
It sounds tempting to take the lump sum. But let's look at the growth of the $1.
| Day | Amount |
|---|---|
| 1 | $1 |
| 5 | $16 |
| 10 | $512 |
| 15 | $16,384 |
| 20 | $524,288 |
| 21 | $1,048,576 |
| 25 | $16,777,216 |
| 30 | $536,870,912 |
By Day 21, you have $1 Million. By Day 30, you'll have about half a billion dollars. You're getting a 100% return everyday, and this compounds ridiculously fast.
Now instead of a 100% return, we have 7% for the S&P500, but the logic is the same. If you invest $100 and it grows 7% in a year, you now have $107. Next year, you don't just earn 7% on your original $100, you earn 7% on $107. That extra $7 is now working for you too. The year after that, you're earning on $114.49. And so on.
This is why time matters so much. It's not about the money you put in: it's about how long your money has to snowball. The first dollars you invest have decades to compound; money you invest later has less time to multiply.
The 7% Assumption
In 2007, Warren Buffett bet $1 million that a simple S&P 500 index fund would outperform a hand-picked portfolio of hedge funds over 10 years (2008-2017). Ted Seides, a hedge fund manager from Protégé Partners, took the other side of the bet.
Final results were a 7.1% annualized gain for the S&P 500 index fund compared to a 2.2% per year for the basket of hedge funds.
Besides explaining my reasoning for the 7% return assumption, my point is this: the hedge fund managers had MBAs, algorithms, insider connections, and charged massive fees, and still couldn't outperform the S&P500. You don't need to know anything about finance to get these returns. You just need to get started.
Conclusion
Investing was always a very foreign concept for me growing up (as it is for most people under 22). I think that a lot of people my age (myself included) have the general belief that if you wait to grow a little older, these adult concepts will come naturally into our lives, and only then will we need to understand them.
I understand that not everyone can start early, and my point of writing this wasn't to guilt anyone into investing. My point was to spread awareness about the biggest barrier that most people face when investing: procrastination and leaving the responsibility to the future self.
The math isn't complicated, the strategy isn't secret.
The only variable you control is when you start, and no one is coming to figure it out for you. Walk your butt into Charles Schwab (or whatever brokerage firm you'd like) tomorrow!
The analysis code and processed data are available on GitHub for those who want to explore further.