The Magic of Compounding—An Example with Twins

What happens if you wait to start investing? This example using twins shows the amazing power of compounding and why delaying could cost you big money. Share this with your younger loved ones to help them get started early on their savings journey!

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When I was young—yeah, I know, decades ago—I used to share a bunch of compounding return examples. I love that stuff. So do the audiences. Honest. In fact, many people said that the examples prompted them to start saving. Fantastic! I got away from them, though, because everybody starting putting them into their books and their presentations, so I kind of moved on. But recently my son pushed me to do one in a video and good call—these things excite me and this is one of my faves. Share it with your kids. Unless they’re newborns. That would be quite weird.

Twin 35-year olds decide they better start saving for retirement. The first twin gets cracking right away.

He sets aside $1,000/month in an RRSP for the next eight years. Marvelous. But then, he starts betting on the Leafs in the playoffs, and, obviously, loses big money year after year for decades thus blocking future saving. So sad. His sister, on the other hand, does essentially the opposite. She delays saving for eight years figuring, ah, a little procrastination won’t make much difference.

“One more trip and then I’ll follow the barber’s advice,” becomes her oft-repeated mantra. But at age 43, she sees the light and sets aside a $1,000/month for the next 24 years. She never wavers. Tremendous discipline. Both invested their funds wisely and averaged an outstanding 10% annual return.

How does this story end? The delusional fan has about $1.4 million at age 67. The diligent sister—about $1.1 million. Hey, both are very impressive totals, but c’mon! She saved for more than three times as long! Three times! Therefore, logically, she set aside three times as much money. Three times! But because she started a mere eight years later on a 32-year time frame, only 25% later, she ends up with a lot less money.

Wow. Mark Twain once said, “The secret of getting ahead is getting started.” The twins prove it. Compounding is your most powerful ally and time is its fuel. Hey, a Leaf fan won for once. This video is going viral.