Which Saver Are You?
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Saver A invests RM1,000 annually for 5 years in a tax-deferred account earning 10% and saves NOTHING for the next 5 years.
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Saver B spends his/her money socialising for the first 5 years, then later only decides to open a tax-deferred account earning 10% with an annual investment of RM1,000.
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Saver A has outpaced Saver B by RM4,100.
The early bird catches the worm.
Let’s look at the case of Saver A and Saver B, who each invest RM1,000 to start. One of them begins immediately, but the other puts investing off.
Saver A begins depositing RM1,000 a year in an account that earns a hypothetical 10% rate of return. Then, after 5 years, s/he stops making deposits. Saver A invested assets, however, are free to keep growing and compounding.
While Saver A fills his/her account, Saver B waits 5 years before getting started. S/He then starts to invest a hypothetical RM1,000 a year for 5 years into an account that also earns a hypothetical 10% rate of return.
Saver A and Saver B have both invested the same RM5,000, but procrastination costs Saver B, as Saver A's balance is much higher at the end of 10 years. Over the 10 years period, Saver A account has grown to RM10,816.00, while Saver B's account has only grown to RM6,716.00.
Saver A's account has not only put the power of compound interest to work, it has also allowed the investment returns more time to compound.