Is it Ever too Late to Start Investing?

This post originally appeared in April 2014.

The short answer is no. It is never too late to start investing, particularly if you have access to a defined contribution plan – such as a 401(k), a 403(b) or the Thrift Savings Plan (TSP) – through your employer. These types of plans offer at least one distinct benefit and one potential benefit. First, the money you contribute to a defined contribution plan is done so on a pre-tax basis, meaning your annual tax liability is reduced. Second, if your employer provides matching contributions, that is free money. Why would anyone pass up free money?

I Don’t Plan to Retire [RetirementSavvy]

However, I would offer a couple of caveats to the idea that it is never too late to invest. First, hopefully people do not confuse it doesn’t matter when you start to invest with it is never too late to invest. To be certain, it absolutely matters when you start to invest; when you begin to put your money to use. As illustrated in the story of twins Ronald and Robert, time is a huge factor with respect to building a retirement portfolio and becoming wealthy.

Summarized, one twin – Ronald – invested $1,000 a year for seven years, left the resultant gains in place, but decided to stop investing new money for the next 25 years. His total contributions: $7,000. Conversely, his brother, Robert, did not invest any money during the seven years that Ronald did; however, he did start contributing to his retirement accounts at the same time his brother stopped, deciding to faithfully contribute $1,000 annually for the next 25 years. His total contributions: $25,000.

Is it Ever too LateBecause of the power of compound interest, partnered with time, Ronald’s nest-egg exceeded Robert’s nest-egg even though he contributed $18,000 less. Do not  underestimate the power of time and compound interest!

Second is the issue of asset allocation. Traditionally, as people approach retirement they make adjustments to the composition of their portfolio. The movement out of stocks, which are more risky, to cash and bonds, which are less risky, is often done because people’s tolerance for risk decreases as they age, and to protect a portfolio’s value in retirement.

One guide that some use is to subtract their age from 100. That number is the percent of their portfolio that should be in stocks. As an example, a 25 year-old might maintain 75% of his or her money in stocks – with the remainder in cash and bonds – while a 65 year-old would only maintain 35% in stocks – again, with the remainder in cash and bonds.

The danger in starting later is that there may be a desire to make up for lost time by maintaining a higher percentage of the portfolio in stocks at later ages. The worst thing that could happen is to invest too aggressively and lose a significant portion of a portfolio while closing in on retirement, the last 3 – 5 years, or soon after going into retirement.

Is it ever too late to start investing? No it isn’t. However, let there be no doubt that the best bet is to start investing as soon as possible and not put yourself in a position where you feel a desire to invest too aggressively toward the end of your working life. Leverage the power of compound interest early and develop a solid withdrawal plan as you close in on retirement.

How about you SavvyReader, have you started investing and do you have a retirement portfolio in place? If not, what are you waiting for?

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.


  1. I’m really pleased that you mentioned asset allocation. It’s okay for young fools like me to be in 90% equities, but even as I approach 30, I’m starting to realize that I need to pay more attention to my risk adjusted returns (at least in my retirement portfolio).

  2. The early the better with retirement savings and let compound interest do it’s thing. It’s something I’m trying to impression upon my three children.

    • “I’m trying to impression upon my three children.” I can certainly relate, my friend. This is one of those cases where you sometimes say, “if only … .” While I’m thankful that I got started on the road to saving/investing earlier than most – my early 30s – and I’m in a position that most would envy, now that I really understand how powerful time and compound interest can be, every once in awhile I wonder how much more financial success I would have found if I started 4,5 or 6 years earlier.

  3. My hubby is the in house investment guru and has been investing through his 403b since he started working. I’m thankful he is adamant about saving for retirement! I would love to invest more in our Roth IRA’s too!

    • Good for the both of you. Consistently investing in a 403(b), or 401(k), is a savvy move. And if there is money left for investing after those accounts, taking advantage of tax-exempt retirement accounts such as a Roth IRA – provided your income does not exceed the allowable limit – is a very wise move. Thanks for taking the time to stop by, Jayleen.

  4. A Google+ reader offers…

    “It’s never too late but I keep telling the kids starting early is so much better, not sinking in yet, grrr.”

  5. A Google+ reader states…

    “We loved the Ronald vs. Robert comparison.”

  6. A Google+ reader states…

    “I agree James, put money into a 401(k) before an IRA. I would encourage people to use a Roth 401(k) when it is available. It is after tax money but it is much more flexible than a traditional 401(k) and all earnings grow tax free.

    With respect to taxes, no one knows what the laws will be when you retire. I like having a combination of taxable, tax deferred and no tax accounts. I believe it gives you more options in the future. One example, had I never contributed and invested in a traditional, taxable brokerage account, I would have never been able to retire early.”

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