Why Invest?
Young Fools
March 25, 1998

This Is Your Lucky Day.

You're about to learn some things that most people don't know.

Many people think that young people shouldn't learn about investing. After all, very few adults were taught about investing when they were young. They might think that kids don't have much money and that there's plenty of time for them to think about investing later, when they're older.

But these people are wrong, because there's one thing that all kids have that adults don't have.

It's a very important thing, but it's usually ignored. It's something that adults, no matter how rich they are, can never get more of. What is it, you ask? Is it a love of chocolate-frosted Ding Dongs? The ability to see the same movie three times in one week? Well, no. It's time.

If you don't learn about investing when you're young, you lose out on an amazing opportunity that you'll never have again. You're very lucky because you're getting a chance to learn some important things that most people don't figure out until much, much later -- if ever.

Check out this example:

Imagine a 35-year old named Midge. If Midge invests just $100 once and forgets about it, it will grow.

We have to decide how fast Midge's money will grow, so we've picked a few different rates of growth. Five percent is what she might get at a bank or with bonds, 10% is what she might get if she does as well as the stock market does on average, 15% is what she might get if she does a little better than the stock market average, and 20% or more is what she might get if she invests Foolishly.

(Table A)

growing at  5%      10%       15%       20% 
  
 age 
 35        $100     $100      $100      $100  
 40        $128     $161      $201      $249  
 45        $163     $259      $405      $619  
 50        $208     $418      $814    $1,541 
 60        $339   $1,083    $3,292    $9,540

The table above shows that if she invests her money Foolishly and sees her money grow 20% each year, that single $100 bill will turn into $9,540 by the time she's 60.

Not too shabby, eh?

Now, let's say that you -- right now -- also invest just $100 once. (We'll say that you're 15 years old.) How will that money grow? Well, it'll grow just like Midge's money did, but after the 25 years shown above, it'll keep on growing -- because you have more time. When Midge is 60, you'll be just 40, with probably at least another 20-25 years to leave the money to grow some more. Look at the table below.

(Table B)

growing at  5%      10%       15%       20% 
  
 age 
 15        $100     $100      $100      $100  
 20        $128     $161      $201      $249  
 25        $163     $259      $405      $619  
 30        $208     $418      $814    $1,541 
 40        $339   $1,083    $3,292    $9,540 
 50        $552   $2,810   $13,318   $59,067 
 60        $899   $7,289   $53,877  $365,726 
 65      $1,147  $11,739  $108,366  $910,044

See what happened to that single $100 bill? Zounds! In 60 years, growing at 20%, it became almost a million dollars. The only difference between you and Midge here is time. You have a lot more of it than she does, so your pile of money will grow a lot bigger. And remember -- this is just a tiny example. The truth is that you can easily do a lot better than this.

You can surely invest more than $100 in your lifetime, right? If you get an allowance or baby-sit or have a part-time job, you can probably save a few dollars each week and maybe save $200 or $500 or $1000 each year.

Mathematically speaking, when you leave money to grow year after year, the really big changes happen in the later years. Notice above that your little nest egg is growing by just hundreds of dollars per year in the earlier years, but in the later years, it's growing by hundreds of thousands of dollars. Plus, if you add to your investment each year, you'll end up with a lot more.

It's easy to get excited about these numbers, but remember that we're talking about many years here. You can definitely become a millionaire -- we'll almost guarantee it -- but it won't happen overnight.

In case you're thinking that we're going to tell you to never spend another dollar, fear not. We don't think you should invest every penny you ever get. That's not Foolish. Yes, you should keep your financial goals in mind and invest regularly, sticking to a plan. But you should also take time (and some money) out to enjoy Titanic VII, to hang out at the local mall, and to do whatever you like to do.

Just remember -- it's never too early to start investing.

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