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This one financial mistake could cost you over £500,000

James, a management consultant from the UK, specialises in helping clients optimize their business goals through effective data utilisation. Outside of work, James developed a keen interest in financial literacy after reading "The 4-Hour Work Week" in 2020. Since then, he has dived into the world of investing. Given the current economic climate, James believes that investing for the future is not only crucial but also presents one of the best opportunities ever. James is eager to help educate and help others do the same through this blog.

There’s a famous quote by analyst Kenneth Fisher, “Time in the market beats timing the market”. 

Now, there’s lots of different strategies when it comes to what you can invest in, and the type of investment you may opt for will differ in line with your circumstances i.e., someone in their early 20s may be more aggressive than someone who is approaching retirement. This blog is not discussing the types of investments you should do and when in your life but highlighting the need for everyone to invest as early and consistently as possible.

As a man in the data world and someone that likes to utilize numbers to make decisions I’m going to show you a graph of two people who invested at different stages in their lives. I’m going to assume they both utilized the same investment strategy by simply dollar cost averaging into an index fund such as the S&P500 which has returned 8% on average per year since 1927.

Take a look at Samantha and John

Person 1: Samantha has been investing since she turned 20 years old back in 2020. She has invested £5000 every year in global stocks and shares ISA up to 2030 when she stopped contributing to her investment.

Person 2: John started investing when he turned 30 in 2030 and contributed £5000 each year into his global stocks and shares ISA until retirement.

Based on the information so far, who will have the most in their ISA come retirement in 2067? Samantha’s total contribution is £50,000, whilst John contributed £185,000 from the age of 30 till he retired.

Based on the context of this blog you probably picked Samantha…and you’d be correct in doing so. By the age of 67, Samantha is left with £1.4M whereas John is left with £1.0M. This is the power of compound interest and the reason why you must start investing as early as possible. 

The £185,000 Samantha did not contribute from 2030 onwards could be put towards a house, holidays, or maybe she started to diversify her investments. The bottom line is because she started early, her money had longer to grow! 

Remember what Kenneth Fisher said? “Time in the market beats timing the market.” I think this is a perfect summary for this blog and hopefully kicks you into action to start investing!

P.S. Note from editing Laura

I used to have a spending problem (scary how normalized it is!) but, the first time I saw this data I started investing right away, but I’ve since stopped and pulled my money out. Why? Because I started my own business and I don’t want to go into debt. If you can invest, do it, but if you have debt, pay that off first.

If you’re spending money not within your budget, that’s a bad reason to not invest. If you’re investing in a start-up business right now or something else that could give you high ROI later, investing money into a savings account might have cons that outweigh the pros. A theme I noticed here is whatever you invest in, be persistent in sticking with your decision. Your gut will tell you what choice is right for you. 

Follow it.


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