Should you start investing now, or wait until you have more capacity to save? It’s a common question.
Most expats I speak with fall into one of two camps:
- Those already saving and investing for the future, even if it’s only a little.
- Those planning to wait until they’ve got more capacity in later life.
If you’re in second category, I completely understand.
You’ve got a mortgage to pay, school fees aren’t cheap, and you probably have a hectic job.
Delaying for saving until later, can at first seem rational – after all once the children leave home and the mortgage is paid you’ll have more capacity to save.
But starting earlier could make a huge difference.
Let’s look at an example:
Dean and Geoff both receive a 5.2% annual return on their investments.
(5.2% has been deliberately chosen as the annual return, because this is what a Global Equity portfolio has returned above inflation since around 1900).
Geoff understands that the more time he’s invested, the more wealth he’ll have. Prioritising starting early Geoff invests £500 per month from age 30 to 65.
Dean has maxed out his income on an expensive mortgage, and private schools for his children. He laments that he’ll start saving when they leave home.
From age 50-65 Dean invests £2,000 per month (4x what Geoff saves).
Even though Dean contributes £168,000 more to his investments, Dean’s savings never catch up with Geoff’s.
This is because Geoff’s investments have longer to compound.
Small regular savings, starting early, always beats waiting to save more.
What if you started investing early, then stopped?
Your ability to invest is rarely linear.
Many people have the highest capacity to save before having children, and buying a house. And again once their children are adults.
The period in the middle sees the highest demands on household income.
Prioritising investing in the early years of life, could mean you don’t need to save anything at all later.
I’ve taken the same example above, and added in Lisa.
Lisa invests £1,000 per month from age 25-35, again receiving a 5.2% annual return.
Lisa then stops saving completely, as other financial pressures come along.
She starts and finishes saving earlier. But ends up with more money at retirement than both Dean & Geoff.
Again the “magic” comes from the amount of time Lisa’s investments have for the growth to compound.
As the saying goes “the best time to plant a tree was 20 years ago, the second best time is today”.
Looking for help to start your investing journey?
Are you an expat with over £150,000 to invest? Arrange your complimentary initial consultation today.
