Why Invest in stocks? Time is Money

Benjamin Franklin is credited with coining the phrase “time is money”, and over the years, this has been well-demonstrated by investors.

Perhaps, the best example of this is Warren Buffet, who is one of the richest men in the world. According to reports, Buffet made 99% of his wealth after he turned 50. He was born in 1930 and is currently 92. This means that almost all his wealth was made in the second half of his life. Why?

Well, the answer lies in early investment. As you reinvest the earned money, it starts growing, and once the capital starts growing, your wealth accelerates exponentially. The longer the time passes, the more capital increases. Let us understand this with an example.

Let’s suppose you have $100 and you receive an annual interest of 10% on this amount. After a year, you’ll have $110. Assuming that you reinvest this amount, you will have $121 at the end of the second year, instead of $120. That’s because you won’t get 10% off $100, but 10% of $110.

This way your capital continues growing exponentially as long as you reinvest your capital. See the figure below to understand how $100 will grow by 10% over a period of 30 years.

The above graph shows that $100 today would grow to almost $1,800 30 years from now. This means that if you invest $200,000 in shares today, you will end up receiving almost $3.5 million 40 years later at an annual return of 10%.

The development is even more staggering over a period of 50 years.

This means that if you invest $200,000 in shares today, you will end up receiving almost $23.5 million 40 years later at an annual return of 10%.

This illustrates why Buffet made a major part of his wealth during the second half of his life.

Therefore, if you’re planning to save for retirement, it is important to start early since the earlier you start, the more time you will have to invest, resulting in bigger returns later.

Time is money, indeed.