When you invest early, your money has more time to grow through the power of compounding. This means that not only do you earn returns on your initial investment, but you also earn returns on those returns over time. The longer your money is invested, the greater the compounding effect. One could achieve similar goals with different routes, such as:-
Early Start, Consistent Contributions: Suppose you start investing for retirement in your 20s or early 30s and consistently contribute to your retirement accounts over the decades. With the benefit of compounding, even modest contributions can grow substantially by the time you reach retirement age. This scenario allows you to build a sizeable nest egg and potentially retire comfortably.
Late Start, Aggressive Saving: If you delay investing for retirement until later in life, you may need to adopt a more aggressive saving strategy to catch up. While it's still possible to accumulate significant savings, you'll need to contribute larger amounts and may need to take on more investment risk to achieve your retirement goals.
Early Start, Reduced Contributions: In this scenario, you start investing for retirement early but contribute less consistently over time. While you still benefit from the power of compounding, the impact may be less pronounced compared to Scenario 1. However, starting early provides a valuable head start, and even small contributions can grow significantly over time.
Early Start, Increased Contributions: Alternatively, you may choose to start investing early and increase your contributions over time as your income grows. This approach allows you to take full advantage of compounding while also harnessing the benefits of higher savings rates later in your career.