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Two Hypotheticals: Planning for a Rainy Day

In scenario 1, you invest 5 grand at the end of each year for the next 10 years. After 10 years, you don’t invest a dime until you retire (at the end of year 30). Thus, you’ve invested $50,000 total.

In scenario 2, you don’t invest a penny until 10 years from now, but invest  5 grand each year for the next 20. This makes your total investment $100,000.

Both of your investments compound at a rate of  6% each year. Which scenario would you choose to retire on?

The surprise (maybe not for some)

Scenario 1 returns more money by the time you want to retire! In fact, you’ll make almost $30,000 more than Scenario 2. But how can this be since you invest TWICE as much in Scenario 2??

Simple. Your investments in early years make a great deal of difference, and the interest that compounds year over year (even at a modest rate of 6%) is more than enough to make up for the larger investments made in Scenario 2.

So start investing now. You won’t regret it!