Claim 1 of 22
Compound interest: start early
Does starting ten years earlier change the outcome as much as the books say?
Verdict
Holds
In every case tested the 40-year saver ends with more than the 30-year saver for the same monthly sum, by a factor that depends only on the return and the number of years, and the first ten years of deposits supply 41 to 54 per cent of the final balance.
The cost, from the book's own figures. Starting ten years later and reaching the same balance takes 340.60 a month at 4 per cent or 430.31 at 7 per cent, which is 122,616 or 154,911 paid in against 96,000.
Made by: Housel, Robbins, Phillips, James and Bradley, Longo, Collins, Clason, and Pape (Barefoot Kids).
The arithmetic, drawn
Starts at year 0 and pays 200 a month for 40 years. Starts at year 10 and pays 200 a month for 30 years. Both at 7 per cent a year. Figures as in the book, in the currency units the book uses.
Test it on your own numbers
- United States: Investor.gov compound interest calculator (investor.gov/financial-tools-calculators/calculators/compound-interest-calculator), to compare your monthly sum started now and ten years later.
- United Kingdom: GOV.UK, Individual Savings Accounts (gov.uk/individual-savings-accounts), to check the types of ISA and this year's allowance.
- Australia: Moneysmart compound interest calculator (moneysmart.gov.au/budgeting/compound-interest-calculator), to compare starting to save earlier with starting later.
The full test, with every figure dated and sourced, is in chapter 1 of the book.