Canto 3

Should You Invest?

Yes and no.


Everyone is going to tell you to start your investing early. This is because of the amazing power of compound interest. Here's some math:

Let's say you plan to put money into some investments that will average a 5% annual return over and above inflation. That's not an unreasonable expectation for stock market investments over the long term. You plan to retire at 65. If you put $1000 into the account at different ages, here's what it will be worth when you turn 65 (remember this is after inflation, so the actual amounts would be more than this):

Here's some more math. If you want a quick way of finding out how fast an investment will grow, use a rule of thumb called variously the "Rule of 70" or the "Rule of 72." If you divide 70 or 72 (whichever makes the math easier) by the interest rate you expect, it gives you the number of years until the investment doubles. So if you're making 8% per year, 72/8 = 9, so you should expect your investment to double in about 9 years.

Anyway, all this math is just to say that if you start saving earlier, you have more money at the end. Pretty obvious, but the numbers above are striking.


There are lots of reasons why it might not make sense to get involved with the stock or bond market at this stage. Here are a few:

Everyone's situation is different, but the basic rule is that if the main things you need money for are coming up fast (less than five years) you should be saving or using cash type investments, and if the things you want to save for are long term (like retirement, education for your children, or down payment on a house) you should be investing on stocks or bonds.


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Last Updated: 17 December 2017
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