How Much Should I Invest?

Yesterday I was giving a presentation at  The Community Enrichment Center in Fort Worth, Texas.  A participant asked a great question:  "What's the minimum amount one can invest?"

I told her, my father always said, "You eat the elephant one bite at a time."  Many mutual funds will open an account with as little as $250.  Once one starts to save, then puts that money towards an investment, then watches that investment grow aided by the magic of compound interest, one begins to realize this can be rather fun.  That leads to finding more ways to make better use of our money, which results in saving more money as a handy bi-product.  This increased savings can then be invested, and before long, one has built a nice nest egg.

One should never delay the act of saving and investing for the future, no matter how small one might think that amount is.  If you don't start on the journey at some point, you never will.  The later you start, the more difficult it is to catch up.  Consider this:  if one invested $2,000 each year from the ages of 22 and 30, inclusive, which would be nine times $2,000, or $18,000, and stopped investing at age 30, and that money was earning 9% interest from the beginning, (the Dow Jones Industrial average has returned over 11% since 1929), you would have almost $600,000 by the time you reached age 65.  However, if you invested $2,000 each year beginning at age 31 and invested $2,000 each year thereafter until you reached age 65, and it earned 9% as in the first example, you still wouldn't have caught up, even though you invested $70,000 (35 times $2,000), as you would have accumulated only $470,000.  So here's a case where $18,000 is indeed greater than $70,000!!!