The Time Value of Money

The biggest advantage in investing is starting early. Your money’s value can grow the longer you have it.

A dollar earned today is more valuable than a dollar earned in the future because of the “time value of money.” For example, if you receive and invest $100 today, it might become $105 or $110 by next year. But if you wait until next year to invest that $100, you’ll miss out on that potential growth.

Imagine two people who make an identical investment at different times. Alex invests $10,000 at age 20, while James invests the same $10,000 at age 30. Both invest in the same way, earn 5% on average per year, and hold their investments until age 60. Even though they’ve invested the same amount, Alex ends up with over 60% more money. Why? Because their money had an extra decade to grow.

As a teen, time is your biggest financial asset. You don’t have much capital yet, but your money has the longest possible runway on which to grow.

A dollar invested at 16 is much more powerful than a dollar invested at 30.