One of the biggest reasons people think as to why they are unable to invest money is that they have too little of it to put to work. They suffer from the misconception that you need to start socking away thousands of pounds a month in order to make it worthwhile. If they don’t have this kind of money, it is not worth it. If they don’t have this money, why even bother.
I have written before in a post tilted Everybody Starts Small why this is simply untrue.
Yes once upon a time you had to be rich in order to invest on the stock market. But that time is long gone. These days, with the advent of online stock brokers, investing has become democratised. Even those with paltry sums of money can partake in the wealth generating ability of the stock market.
Let’s take a typical 21 year who has just landed his or her first full time job. At this age, you wouldn’t expect the person to have much money left over after accommodation, food, socialising and paying off student loans.
So let’s be conservative and say the person is able to save £15 a week. That is not much. It’s just a meal or two out. £15 a week is only £60 a month.
Our 21 year old invests this £15 a week into a plain vanilla index fund (LINK) earning the average historical stock market return of 7%. So how much do you think this person would have by the time he or she reached state retirement age?
£213,450. Yes that’s right, even if the person never increased the investment contribution of £15 a week, by the time they reach 66 they will have £213,450.
If that sounds crazy, here is another statistic that may blow your mind.
Only £32,400 of the £213,450 total comes from the £15 weekly contributions. The other £181,050 comes from investment returns.
Yes you read that right.
Only 15% of the total end amount comes from the persons contributions. 85% comes from stock market returns. This is the power of investing. This is the power of the stock market. Investing has the ability to compound your money over time. Even small amounts turn into large sums. This is why everyone needs to invest money, even those only able to sock away £15 a week.
And the more you put away the more you benefit. As the saying goes, money makes money.
Let’s return back to our 21 year old and say he increases his savings slightly and invests £20 a week at the same 8% return per annum. How much would he or she end up with?
In this case, he or she would end up with with close to £285,000 by the time they reached state retirement age. £43,200 of this amount would come from his contributions whilst £241,200 would come from investment returns.
- If weekly investments had to be increased to £30. The end result would be £427,000!
- £40 saved and invested each week would lead to £570,000!
- £50 saved and invested each week would lead to £710,000!
- £60 saved and invested each week would lead to £854,000!
- £70 saved and invested each week would lead to £996,000!
- £80 saved and invested each week would lead to £1,138,450!
- £90 saved and invested each week would lead to £1,280,760!
- £100 saved and invested each week would lead to £1,423,000!
From the above we can see that it only takes investing £70 a week from the age of 21 to retire a millionaire. Thats just £280 a month to become a millionaire. It is not a lot of money to save weekly or monthly when you think about it. It’s a couple of nights out.
So if you are waiting on the sidelines thinking about investing, my opinion is just do it. Even if you are able to invest tiny sums each month, it is still worth it as seen by this post. Small amounts do make a difference. And the earlier you start, the more your money will grow.