Effect of starting early and compounding your returns

Today I was sharing with my brother about investing in stocks for dividend payouts as part of one’s long term wealth accumulation and growth plan.

I also mentioned generally stocks can give a 5% dividend yield. And if one is aiming for financial freedom, say $2,000 monthly, a lump sum of $500,000 would then be needed.

Yes, this amount looks horrifying huge.

I did another calculation out of curiosity, just to see how long it will take one to save up $500,000 if one were to save $500 per month.

And oh my, it will take us 83 years!

And I wonder how many of us would be able to live to see that day.

However, instead of letting this huge goal stop us totally in our tracks, let’s break it down into smaller goals.

Always remember, one can start anywhere with whatever one has.

Even assuming a person with $0 savings just decided today to save $500 a month and invest diligently in stocks every year with a dividend yield of 5%, it will take this person about 76 years instead to hit $500,000 compared to someone who will take 83 years because he/she didn’t invest at all.

That’s 7 years lesser to hit one’s goals.

If one can save more, say $1,000 a month, the number of years would be reduced from 83 years to 42 years needed.

And if one actively and diligently invest every year with a 5% return, 24 years is now needed instead. Now, this looks more promising, isn’t it?

The point here (especially to my brother in his prime 20s) is, time itself is a great commodity and helps one in compounding returns.

And to all my readers out there, the same goes for you.

The earlier you start investing, the better. 

And remember one’s financial goals varies from each individual. Other than trying to save more, depending on your income bracket, one can also look at investments with higher returns or adjusting one financial goals. In my example, I used $2,000 needed per month. If you can review and reduce unnecessary expenses, you’ll probably need lesser initial capital.