I’m not saying that you should be investing right now (because there’s a lot of uncertainty, and that’s a personal decision you have to make), but I firmly believe that you should be investing. No, I’ll rephrase that to be more emphatic – you need to be investing.
Here’s what your finances will look like after 40 years of working, without investing. Let’s assume that you start off at 20 years old, you have $5,000 and you get a job that allows you to save $1,000. After a year you get a pay rise and save $2,000, after a few more years you’re saving $3,000, then $4,000… up to when you’re 36 years old and saving $20,000 a year. You don’t get any interest on your savings because you put your money in the bank. You get set back a bit at age 30 because you bought a house, which also reduces the amount you can save.
| Age | Value of Savings | Annual Savings from Job |
| 20 | $5,000 | 1000 |
| 21 | $6000 | 2000 |
| 22 | $8000 | 3000 |
| 23 | $11,000 | 3000 |
| 24 | $14,000 | 5000 |
| 25 | $19,000 | 5000 |
| 26 | $24,000 | 6000 |
| 27 | $30,000 | 6000 |
| 28 | $36,000 | 8000 |
| 29 | $44,000 | 8000 |
| 30 | $0 | 5000 |
| 31 | $5,000 | 5000 |
| 32 | $10,000 | 10000 |
| 33 | $20,000 | 10000 |
| 34 | $30,000 | 15000 |
| 35 | $45,000 | 15000 |
| 36 | $60,000 | 20000 |
| 37 | $80,000 | 20000 |
| 38 | $100,000 | 20000 |
| 39 | $120,000 | 20000 |
| 40 | $140,000 | 20000 |
| 41 | $160,000 | 20000 |
| 42 | $180,000 | 20000 |
| 43 | $200,000 | 20000 |
| 44 | $220,000 | 20000 |
| 45 | $240,000 | 20000 |
| 46 | $260,000 | 20000 |
| 47 | $280,000 | 20000 |
| 48 | $300,000 | 20000 |
| 49 | $320,000 | 20000 |
| 50 | $340,000 | 20000 |
| 51 | $360,000 | 20000 |
| 52 | $380,000 | 20000 |
| 53 | $400,000 | 20000 |
| 54 | $420,000 | 20000 |
| 55 | $440,000 | 20000 |
| 56 | $460,000 | 20000 |
| 57 | $480,000 | 20000 |
| 58 | $500,000 | 20000 |
| 59 | $520,000 | 20000 |
| 60 | $540,000 | 20000 |
This person ended up at age 60 with the equivalent of just over $0.5m and is mortgage free. Sounds good? Well, not really because that’s not enough to retire on at age 60. That half a million has to last another 20-30 years, and will be eroded away by inflation. Even without inflation, that $0.5m is only $25k a year over 20 years, or $16.5k over 30 years. Sure, it’s a nice boost to the pension (assuming there is such a thing in the future – there probably will be), but in this model you’re relying on the government looking after you. You have not saved enough to be certain of your own future without welfare.
Also, consider how much you have saved compared to this model for someone your age. How does your position look right now? Are you saving that much power year? Have you saved that much to date? Do you own a home with a mortgage that will be paid off before retirement at the current rate?
Now lets consider the same person, but who has invested in the stock market. Lets assume a 14% return (which is the average return of the NZX per year), minus 3% for inflation, dropping us down to an 11% Return On Investment (ROI).
| Age | Value of Savings | Annual Savings from Job |
| 20 | $5,000.00 | 1000 |
| 21 | $6,550.00 | 2000 |
| 22 | $9,270.50 | 3000 |
| 23 | $13,290.26 | 3000 |
| 24 | $17,752.18 | 5000 |
| 25 | $24,704.92 | 5000 |
| 26 | $32,422.46 | 6000 |
| 27 | $41,988.94 | 6000 |
| 28 | $52,607.72 | 8000 |
| 29 | $66,394.57 | 8000 |
| 30 | $0.00 | 5000 |
| 31 | $5,000.00 | 5000 |
| 32 | $10,550.00 | 10000 |
| 33 | $21,710.50 | 10000 |
| 34 | $34,098.66 | 15000 |
| 35 | $52,849.51 | 15000 |
| 36 | $73,662.95 | 20000 |
| 37 | $101,765.88 | 20000 |
| 38 | $132,960.12 | 20000 |
| 39 | $167,585.74 | 20000 |
| 40 | $206,020.17 | 20000 |
| 41 | $248,682.39 | 20000 |
| 42 | $296,037.45 | 20000 |
| 43 | $348,601.57 | 20000 |
| 44 | $406,947.74 | 20000 |
| 45 | $471,711.99 | 20000 |
| 46 | $543,600.31 | 20000 |
| 47 | $623,396.35 | 20000 |
| 48 | $711,969.95 | 20000 |
| 49 | $810,286.64 | 20000 |
| 50 | $919,418.17 | 20000 |
| 51 | $1,040,554.17 | 20000 |
| 52 | $1,175,015.13 | 20000 |
| 53 | $1,324,266.79 | 20000 |
| 54 | $1,489,936.14 | 20000 |
| 55 | $1,673,829.11 | 20000 |
| 56 | $1,877,950.32 | 20000 |
| 57 | $2,104,524.85 | 20000 |
| 58 | $2,356,022.59 | 20000 |
| 59 | $2,635,185.07 | 20000 |
| 60 | $2,945,055.43 | 20000 |
The stark difference barely needs commentary. You can see that not only has the investor managed to save a $66k deposit, verses the saver who saved $44k (buying a much smaller house), the investor has accumulated nearly $3m by age 60 vs the saver who has only $0.5m.
The saver has lived the same live, but retires at an old age and relies on his pension to survive, while the investor is a multi millionaire, probably retired early, probably saved less and spent the money on life instead of just banking it.
So in summary, I ask you once again to look at your own bank account and see how much you save a year, then ask yourself whether you can afford not to invest. Because, personally, I can’t.
You need to be investing.
Lewis Hurst
If you are interested in learning to invest, I invite you to take a look at this tutorial and subscribe to my website for more information. Certainly you’ll need to do more research that this, and it won’t be an easy road, but you have to do it.
