Waiting Can Be Costly
Why Waiting Can Be Costly
Reinvesting earnings and keeping them invested to generate more earnings (compounding) helps offer a better chance of reaching your goals.
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Compounding makes a lifelong difference.
Accumulated earnings at age 65
The power of compounding
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Source: Schwab Center for Financial Research. Assumes a consistent annual 6% rate of return with $1,200 contributions made at the beginning of each year. The amounts shown reflect investment growth only, and final results do not consider any transaction costs, fees, or taxes. This represents a hypothetical investment, is for illustrative purposes only, and is in no way to be considered indicative of any guaranteed performance an investor can expect to achieve. The actual annual rate of return and value will fluctuate with market conditions.
You could have perfect timing, but that’s usually not the case. See how a hypothetical 20-year investment, whether it was made under poor or perfect market conditions, did much better than just saving in cash investments.
- $177,979Perfect Timing
- $165,393Invest Immediately
- $144,951Bad Timing
- $65,202Stay in Cash Investments
Source: Schwab Center for Financial Research. This chart shows the outcomes for four hypothetical investors who invested $2,000 a year for 20 years. Investor A invested each year at the market trough. Investor B invested immediately on the first day of each year (highlighted by the purple bar). Investor C invested each year at the market peak. Investor D never implemented the plan and stayed in T-bills. Investors A & C invested their yearly $2,000 investments in T-bills while waiting to invest in stocks. Stocks are represented by the S&P 500® Index with all dividends invested. Indices are unmanaged, do not incur fees or expenses, and cannot be invested in directly. Average results remained relatively unchanged when the study is extended to 12-month periods that begin with a month other than January. In the case of the 12-month period that goes from February to January, Investor B invested immediately on the first day of February each 12-month period for 20 years. Past performance is no indication of future results.
Past performance is no indication of future results.