The power of time when investing
Earlier this year, I attended an investment workshop hosted by SSQ Financial Group. (SSQ is a very solid insurance company. It was found in Quebec and expanding its business into Ontario.) During the seminar, the presenter illustrated several interesting investment concepts. One of them is the “Power of Time When Investing”.
Let’s consider the following two scenarios. Assume annual rate of return is 7%, suppose you:
- Scenario#1: Start to deposit $1000/year at age 18 until age 28
- Scenario#2: Start to deposit $1000/year at age 28 until age 65
The question is which scenario would end up with more savings at age 65.
Many people would choose scenario #2, because the contribution duration is a lot longer (From age 28 to 65), that means you deposit more money into the account.
However, the real answer is scenario #1. In this case, you only contribute into the account for 10 years and then let the savings compound without further deposit. It is that 10 years ahead of time, which makes this strategy outpace the latter one. For scenario #1, at age 65, you will end up with $180714, versus only $171561 for scenario #2.
As you could see, time could play a huge factor when it comes to investing. When planning for your savings (i.e.: RRSP, TFSA, RESP, RDSP), always remember the earlier you start, the more time your money could grow for you.