It’s Okay to Start Small and Build Over Time.

Comedian Lewis Black has a set where he shares a theory on aneurysms. Essentially, he claims that you hear something so stupid that it gets in your head, bounces around for years, and then one day *boom* – stroke. (Link to the video at the bottom of the post)

Now, of course this is ridiculous, but the concept always stuck with me. Then, I saw something on Twitter that is certainly the seed for my future stroke:

Now, there are lots of unbelievable things on social media. Bad takes abound. So why did this one jump out? 

There is so much here. To be fair, I agree that growing income is important rather than just relying on investment returns. Unfortunately, by the time you get to that single reasonable point, you have waded through utter garbage.

The implication that the stock market is unknowably dangerous. The idea that an investor has to have a large stake like a professional gambler. The horrible advice to delay investing.

So, in an attempt to clear it out of my brain and save myself an aneurysm, let’s look at how those things come together. I’ll share a couple of examples that illustrate the potential in starting small and building over time. 

Power of Starting Early

Waiting to start investing until later in life is one of my biggest financial mistakes. Getting started early takes advantage of the power of time and compounding returns. 

I estimate that I lost over $100,000 in potential net worth growth by waiting until my 30s to start investing. 

One of the biggest keys to financial independence is to start as early as possible. I encourage new teachers to start immediately.

Investing in Stocks Doesn’t Need to Be Complex

I can’t deny there are scary moments in the market. This post is being published in the midst of a very volatile market that’s off 20% from it’s high point. 

The thing is – you can build a stock strategy that doesn’t need to be complex or scary but will still provide you with solid investment returns over time. And, if you just invest regularly without paying attention to market conditions, you don’t need to worry about what is happening day to day or even month to month.

Essentially, you invest regularly in a total stock market index fund. JL Collins is perhaps the most famous proponent of this strategy in his Simple Path to Wealth. 

By investing in a total market fund, you own a piece of every publicly traded company. Your returns will match the market returns – which incidentally beats most professional advisers over time.

You Can Start Small

You can start investing in the total stock market directly with Vanguard for as little as one share in VTI – the total stock market ETF.

If you have a 401k, a 403b, or a 457b through your employer, you can also start in those with a small monthly amount.

Related Post: 403b vs 457b: Which Should I Choose?

There are lots of ways to start with a small amount. Unless you have a 401k/403b match at work, make sure you pay down your high interest debt first. After that, do everything you can to carve out a small amount and get started now. 

Starting small is great. Begin with a small regular investment. As you grow your ability to earn and/or save, increase that regular amount. An easy way to do this is to automatically invest a portion of any raise you get.

$50 a month? Small increases? Does this really accomplish anything? 

You’ll be surprised at the results.

Examples

Let’s look at a few examples to show the power of starting small and building over time.

These examples assume that you begin by investing $50/month at age 23. I assume average annual returns of 7%. Don’t expect returns to be stable – they will vary significantly year by year. This is a reasonable assumption of average returns over time.

Each year, you increase this monthly automatic investment by a small amount. You continue for 32 years.

Let’s look at two examples and the results:

Increase $50/month every year

In example 1, every year you add $50 to your automatic investment. So, in year 2, you’d be investing $100/month, year 3, investing $150/month etc.

What does that look like?

By the time you’d be able to access your retirement accounts without penalty at age 60, you’d have a million dollars invested – just from starting small and building in small increases over time.

Increase $100/month every year.

This example starts with the same reasonable $50/month. However, every year you increase the amount by $100/month. You stick with this strategy until you are 55. 

At age 50 – you have a million dollars in investments! Less than 10 years later, before age 60, you are a multi-millionaire!

The Power of Starting Small and Building Over Time

You definitely don’t need $100,000 to start investing in the market. You also don’t need to be 23 to begin capturing the power of time and compounding. I didn’t start until age 33.

But, you should start as soon as you can, with whatever amount you can carve out. Start building the habit now. Increase as you are able. Stick with it. Over time, you will see incredible results.

Start small. Build over time. Future you will be grateful!

Now, I need to go see my doctor to talk about aneurysms…

Here’s that Lewis Black bit – it’s great throughout, but the aneurysm part comes toward the end:

Comedy Central Presents: Lewis Black.- College Horse