Benefits of Saving Early
Starting earlier can make a surprisingly large difference to a long-term investment, even when the amount invested each month remains exactly the same.
The reason is not simply that an earlier investor makes more contributions. Money invested sooner also has more time in which it may grow, and any returns generated along the way have more opportunities to contribute to future growth.
Over a few years, the difference may appear relatively modest. Over several decades, however, those additional years can have a much greater effect.
This guide looks specifically at why the point at which you start matters, what delaying can mean for the amount you may need to contribute later, and why starting later can still be worthwhile. For the wider relationship between time and long-term investing, see Why Time Is Your Greatest Investing Advantage.
Why Starting Earlier Can Make Such a Big Difference
Compound growth means that investment returns can become part of a growing balance and potentially contribute to future returns. The longer this process has to continue, the more opportunities there are for earlier growth to build upon itself.
This gives contributions made near the beginning of an investment period an advantage that later contributions cannot receive: more time.
Imagine two people investing the same £200 each month until age 65. If one begins at 20 and the other at 30, the first person contributes for an additional 10 years. But the difference between their eventual outcomes is not limited to those extra contributions.
The money invested during those first 10 years also has decades in which it may participate in future investment growth.
That is why relatively small differences in starting age can eventually produce much larger differences in estimated investment value.
Each example invests the same £200 every month and assumes the same 7% annual return. The only difference is the age at which investing begins. 45 years invested Longest time available for compounding 35 years invested Ten fewer years of compound growth 25 years invested Twenty fewer years than starting at 20 Beginning at 20 rather than 30 produces around £398,000 more by age 65 in this illustration. Part of the difference comes from additional contributions, but most comes from giving those early contributions longer to compound. Change the monthly contribution, annual return and investment period to see how giving your money more time can affect the estimated final value. This illustration assumes £200 is invested at the end of every month, earns a fixed nominal annual return of 7% compounded monthly and remains invested until age 65. It does not account for fees, tax, inflation or changing investment returns. Figures are rounded to the nearest pound and are not guaranteed.How Starting Age Can Change the Final Value
Scenario
Start at 20
Start at 30
Start at 40
Compare your own starting-age scenarios
The figures are illustrative rather than a forecast, but they demonstrate an important relationship. The person starting at 20 contributes £24,000 more than the person starting at 30, yet the estimated difference in their final balances is far greater than £24,000.
The additional years have given those earlier contributions much longer to participate in potential compound growth.
If you want to understand the mechanism behind this in more detail, What Is Compound Interest? explains how previous growth can become part of the balance used to generate future growth.
Why Lost Time Is Difficult to Replace With Bigger Contributions
Starting later does not prevent someone from building an investment balance. One possible response is to contribute more each month.
However, increasing contributions and increasing time do not affect an investment in quite the same way.
Starting earlier
Contributions made earlier have more years in which they may participate in investment growth. This gives potential returns more opportunities to build on previous growth.
Contributing more later
Larger contributions can help build the balance more quickly, but more of the eventual value has to come from money being added because fewer years remain for potential growth.
A higher contribution can partly compensate for starting later, but it cannot recreate investment years that have already passed.
This distinction is why delaying for 10 years can matter more than simply missing 10 years of contributions.
You also lose the potential future growth that those contributions might have generated. Money that was never invested cannot produce returns, and those unrealised returns cannot go on to participate in later growth.
None of this means you should invest before you are financially ready. Money needed for short-term spending, essential expenses or an appropriate emergency fund has a different purpose from money intended for long-term investment.
The point is simply that, once investing is appropriate for your circumstances, time is a resource that cannot be added retrospectively.
Can You Still Catch Up If You Start Later?
Starting later does not mean the opportunity to build long-term wealth has disappeared.
Someone beginning in their forties, fifties or beyond may have fewer years available than someone who started much younger, but the years ahead can still provide opportunities for contributions to grow.
A later investor may also be in a very different financial position. Income may be higher, debts may have reduced and there may be greater capacity to make regular contributions.
Where affordable, increasing the amount invested can partly compensate for having less time. Another possibility may be extending the target date or reconsidering the amount required for a particular goal.
These variables work together. Having less time may place more emphasis on contributions, while having more time can reduce some of the pressure placed on the amount invested each month.
The useful comparison is therefore not with somebody who happened to start 20 years earlier. It is between starting from your current position and delaying further.
The Savings Time Calculator can help illustrate this relationship by showing how contribution levels, assumed returns and the time available interact when working towards a target.
Why People Put Off Starting
There are reasonable circumstances in which investing should wait, particularly when money may be needed soon or other financial priorities need attention. But people can also delay because they believe they need circumstances to be perfect before they begin.
Why people sometimes delay investing
Several common concerns can cause someone to postpone investing even when they are considering a long-term goal.
Waiting until they have more money
It can be tempting to assume investing only becomes worthwhile once a large monthly contribution is affordable. Smaller regular amounts still have time in which to participate in potential future growth.
Waiting until they know everything
Understanding what you are investing in is important, but becoming a financial expert is not a prerequisite for learning the fundamentals and making a considered plan.
Waiting for the perfect market moment
Short-term market movements are uncertain. Waiting indefinitely for an ideal entry point can reduce the amount of time available for a genuinely long-term investment.
The answer is not to rush into an investment you do not understand. Starting earlier only provides an advantage when the investment itself is suitable for its intended purpose and the money can appropriately remain invested.
It is therefore useful to distinguish between preparing properly and waiting for perfect conditions. The first can improve a financial decision. The second may simply keep moving the starting point further into the future.
What Starting Early Does Not Guarantee
The mathematics of starting earlier can produce striking illustrations, particularly over several decades. Those examples should not be mistaken for guaranteed outcomes.
It is particularly important not to respond to a later starting point by assuming you need to pursue unusually high returns.
Higher potential returns generally involve greater uncertainty and risk. Having less time available does not make taking excessive investment risk a sensible way to compensate for years that have already passed.
A realistic plan should instead consider the time available alongside contribution levels, the financial goal and an appropriate level of investment risk.
How to Use the Time You Still Have
The most useful lesson from starting-age comparisons is not that everyone should have begun investing at 20. For many people, that would never have been realistic.
What matters now is the time that remains.
If long-term investing is appropriate, regular contributions allow new money to begin participating in potential growth. Those contributions do not have to remain unchanged forever. As income, expenses and other financial priorities change, the amount invested can be reviewed as well.
Starting with a sustainable amount can therefore be more useful than postponing a plan while waiting until a much larger contribution becomes affordable.
The same principle applies if investing has been interrupted. Financial circumstances change, and there may be periods when contributions need to be reduced or stopped. Restarting when circumstances allow gives future contributions the opportunity to work over whatever time remains.
It can also help to focus on the variables you can still influence rather than the starting age you can no longer change. Contribution levels, target dates and financial goals may all be adjustable.
If you want to see how those variables affect an estimated outcome, the Compound Interest Calculator allows you to compare different investment periods, contribution amounts and assumed returns.
Conclusion
Starting earlier can make such a large difference because each contribution has more time in which it may participate in potential investment growth. The advantage is not simply making more payments; it is giving earlier money more opportunities to grow and potentially build upon previous returns.
Starting early does not guarantee investment success, and starting later does not mean the opportunity has disappeared. The practical value of understanding the relationship is knowing that time is finite: once investing is appropriate for your circumstances, beginning sooner gives the money you invest today more time than the same contribution would have if it were postponed.
