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Why do we procrastinate? How does this play out in our brains? We say something like “I know I have to brush my teeth, but I’ll get caught up tomorrow. One day (or month or year) isn’t going to make a difference. Just leave me alone!”
Others have a vague sense of “Enough already with the guilt trips! I’m an adult, I can figure these things out. Back off!”
Whatever the actual concepts that churn in the nether regions of our consciences, they all have this in common: “Why do I REALLY have to do it? Can’t it wait one more year? Is it really going to make that much of a difference? I mean, really?”
Every procrastinator ends up there in one way or another. And underlying every decision to procrastinate is the fundamental equation: “The pain tomorrow will be less than the pain today. So I prefer the less pain of tomorrow to the more pain of today.”
That Much Difference?
Will postponing your investing really make that much difference? Let’s see. Let’s use a well-known chart as our illustration:
What this chart shows is the miracle of compounding: if you earn x% per year and keep reinvesting the earnings (interest, dividends, rent, or whatever the income is) those earnings will grow bigger and bigger every year. Why? Because the pot earning the return grows bigger each year by that year’s return.
Is this important? It is for Warren Buffett, if that’s any indication. He is all about the miracle of compounding.
For most investors (including you) the chart will look something like this over your life. The exact numbers don’t matter; for every investor they’ll be different. It’s the overall shape that’s important, and (barring withdrawals and recessions) the value of your investments will look something like this chart.
The Big Payoff
Okay, quick: which year on the chart has the biggest growth? Right, the final year (whichever year that happens to be).
Which year has the second best return? The penultimate year, of course. Now, which year will have the smallest return? The first year, not surprisingly.
As you progress in time, each year’s earnings will be bigger, because it’s earned on a progressively bigger base.
In other words:
When you look at the chart, note the following:
- The growth in the first five or so years is negligible compared to the final few years.
- The real growth happens at the end
- You can’t judge the eventual size of the pot by the growth of the first few years
But the final few years wouldn’t look so good if the first few years weren’t there.
Let’s look at that previous statement a little deeper. What happens if you procrastinate, and wait, say, five years before investing in the stock market or in a business?
You know you’re going to make less, that much is obvious. But how much less?
Your first instinct might be that the returns in the first few years are trivial anyway, so it can’t be too much of a loss, can it?
Let’s see how that thought looks on the chart:
It’s so small, you wouldn’t even see it if it wasn’t highlighted… right?
You can never get a return on nothing, so the beginning will always be the beginning — nothing you do can change that.
The only thing you can change is the ending. With five fewer years to earn a return, procrastination will cost you the LAST five years of growth:
Is there a difference between the growth of the last 5 years vs. the first 5 years? Yes. It’s huge!
That’s the growth you lose by procrastinating!
The five best years of your investment’s growth will always be the last five years. And those are the years you lose by waiting to get started. It could be as much as half the total return over the life of your investment! It’s that significant.
When I learned this I could not help smacking myself on the head. It’s so obvious, but nobody told me this before. (What can I say, nobody ever accused me of being the brightest bulb on the Christmas tree; I need to be told even obvious things.)
They say we learn from our mistakes, but a smart person learns from another’s mistakes.
Start By Just Learning
Procrastination can cause you a lot. It can cause you your personal finance. It can cause you that wonderful retirement you’ve always been dreaming of and the financial stability that comes with it. It can also cause you your credit card and mortgage payments. Basically, procrastination can cause you a lot of money and opportunities.
Now that you know the true price of procrastination (the best years of your own net worth) you know what to do. Bite the bullet and get started.
Investing is like an airliner: before it takes off there’s a lot of work to do on the ground. Then it needs to rumble down the taxiway to the end of the runway. Only then can it open the throttles and gather speed before actually taking off toward its destination.
Getting started in investing is much the same. There’s a lot you can learn before you need to invest your first dollar.
That’s good news, because nothing stops you from biting the bullet and starting the learning process now. There are many free resources on the internet. There’s no one best way to road map the learning path — everyone operates differently. Just start somewhere and keep following your nose.
The important thing is not how you start, but that you start. It will come to you as you go along. Just begin.