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The power of compound interest
Imagine you have decided to invest a lump sum of $1,000, and then you continued to invest $100 at the end of every month into a managed investment that earns, say 8% pa. Let's look at the difference in how much you would have if you started today, compared with how much you would have if you waited another 3 years and then started to invest.
Assumptions:
Invest $1,000 initially then $100 per month at the end of each month.
Return 8%p.a.compounded monthly. No allowance is made for for
inflation, fees or taxes.
Assuming the above, if you started investing right now, then 10 years from now you would have $20,171. If you waited 3 years before starting you would have just $12,808.
However, the compound interest is the really amazing thing. This is shown in orange on the chart. If you started investing now then in 10 years you will have earned $7,131 in compound interest, but if you wait just 3 years to start investing you will have only earned $3,408 - less than half as much!
And the longer you are investing for, the greater the difference in compound interest. Over 30 years, starting in 3 years means you miss out on more than $30,000 of compound interest!